USD/CNY likely to return to previous levels considering possible tariff rollbacks by the US in months ahead, says Scotiabank

The USD/CNY currency pair is expected to return to previous levels corresponding to different additional tariffs if considering possible tariff rollbacks by the US in the months ahead, roughly reversing the process of the yuan weakening accordingly in response to additional US duties imposed step-by-step on Chinese products in the past years, according to the latest research report from Scotiabank.

It has been widely reported that US and Chinese officials are actively considering rolling back some tariffs as part of a phase-1 trade deal.

The US media Politico reported on Tuesday morning that China is demanding that US President Donald Trump not only eliminates a round of tariffs scheduled to go into effect in mid-December but also lifts another substantial round of penalties imposed in September as Chinese President Xi Jinping considers a visit to the US to sign a "phase-one" trade deal, citing three people familiar with internal discussions.

Earlier on October 25, Reuters reported that "the Chinese want to get back to tariffs on just the original USD250 billion in goods."

"In our view, it would prompt the dollar/yuan to fall below 6.90, a level seen right before August 1 when US President Donald Trump announced a 10 percent additional tariffs to be imposed on another USD 300bn of Chinese goods with effect from September 1," the report further commented.