The yuan remains vulnerable to further weakness should additional tariffs kick in later this year, even after the U.S. and China agreed to a tentative trade truce, according to UBS Group AG’s chief investment office.
The interim agreement is unlikely to provide a significant boost to markets due to the wide number of more contentious issues that remain outstanding, including the ban of Huawei Technologies Co. and other Chinese tech firms, currency transparency and intellectual property rights, as well as tariff hikes scheduled for December, analysts including Hartmut Issel said in a report Monday.
“Given the history of setbacks after previous preliminary agreements, we would need to see more tangible signs of a comprehensive and also lasting solution if markets are to add on to previous gains,” the analysts said. “Should additional tariffs in December kick in, we believe USDCNY will still be exposed to renewed upside.”
The onshore yuan remains on a trajectory toward a top of 7.4 against the dollar in 2020, with China’s economic growth expected to moderate to 5.5% next year, UBS said.
Still, if the December tranche of tariffs is delayed and further talks lead to more mini-agreements, the yuan could stabilize at current levels and trade near the lower end of the 7.0 to 7.4 range over the coming months, the analysts said. Bloomberg
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