Yuan Eyes On FOMC, China-US-North Korea Relations, Investment Gauge

Fundamental Forecast for CNH: Neutral

  • Fed’s rate hike outlook from June FOMC meeting will largely impact the USD/CNH.
  • US-China trade disputes could hurt both the Dollar and the Yuan; major obstacles remain.
  • China may gain leverage in negotiations through its relationships with North Korea and Russia.

The Chinese Yuan gained against the U.S. Dollar after three consecutive losses. This was largely driven by the reduced momentum in the Dollar rally. Yuan’s correction against the Dollar was less than most of the major currencies to the Dollar, such as the EURGBP,AUD and NZD.

Looking forward, the FOMC meeting on June 13 could reveal the outlook of Fed's rate hikes in the second half of 2018 (June hike is almost a certain), as well as the prospect in 2019. This will be a primary driver to all Dollar pairs including the USD/CNH and USD/CNY. China’s relationships with the U.S., North Korea and Russia will be key factors as well. Also, a heavy economic calendar will have the Yuan at risk from home.

China-US Trade disputes could hurt both the Dollar and the Yuan; increasing tensions between the two could drive capitals flowing into non-dollar safe-haven currencies, such as the Yen. Trade worries could hurt the stock market as well, which were seen previously. As of Friday, it has been widely reported that China offered to buy additional $70 billion US products on an annualized basis, in the effort to ward off Trump’s tariffs on Chinese goods; the amount was close to US’ demand of a $100 billion reduction in its trade deficit with China.

China’s Foreign Affairs Ministry has not confirm nor refute the offer. More importantly, US’ tariffs are not just for cutting the deficit, but also designed to counter against China’s industrial polices, such as “Made in China 2025”, where the two parties have the largest disagreement. There is not much time left before June 15 when the U.S. will release the final list of tariffs. Concerns could rise as it is approaching the deadline.

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