Chinese yuan likely to trade with more two-way fluctuations tracking U.S.-China trade conflicts, says Scotiabank

The Chinese yuan is expected to trade with more two-way fluctuations, by taking into account ongoing US-China trade tensions, the Treasury Department’s semi-annual FX report and the People’s Bank of China’s (PBoC) monetary policy easing, according to the latest report from Scotiabank.

US President Donald Trump tweeted last Friday that China, the European Union and others are manipulating currencies and putting the US at a disadvantage. He also threatened to slap tariffs on all USD500 billion of imports from China during Friday’s CNBC interview.

One day earlier, Trump told CNBC that "China, their currency is dropping like a rock. Our currency is going up. I have to tell you, it puts us at a disadvantage." Remarks from US President Trump have raised concerns about the current trade war evolving into a currency war.

In addition, US Treasury Secretary Steven Mnuchin told Reuters on Friday that the US is monitoring the recent weakness in the yuan and will review whether the currency has been manipulated in its semi-annual report on currency manipulation due on October 15.

"We expect the US and China to resolve their trade dispute through dialogue in the coming weeks before US President Donald Trump shifts his focus to the 2018 midterm election set for November 6. If so, China’s fiscal and monetary policy will then boost risk appetite across the markets," the report added.