Chart of the Day: USDCNH
USDCNH rallied back above the 7.000 level on Friday’s trading after the uninspiring phase one trade deal saw USD recoup most of its losses.
Markets were primed for a significant deal last week, expecting significant tariff rollbacks. Trade proxy, USDCNH, weakened to a four-month low of 6.9214 in Thursday’s trading ahead of the highly anticipated formal announcement on Friday.
But as the details of the much-anticipated Phase One deal emerged, USDCNH strengthened back above the 7.000 level in Friday’s trading as markets learned of a deal less inspiring than hoped for, particularly with some $380b of US imports maintaining tariffs.
The Phase One deal canned new tariffs that had been scheduled for Sunday, halved tariffs on $120bn of Chinese goods from 15% to 7.5%, and saw China agree to purchase at least $40bn worth of US agricultural goods and adhere to new intellectual property commitments.
USDCNH recouping most of its losses Friday, as well as 1-week implied volatility up at 7.850, suggests skepticism remains around the ongoing relationship and surveillance of the agreement.
The market wants more detail and a more significant phase trade deal for a meaningful move below the 7.000 level, something markets might have to wait beyond the 2020 US election to see. US Trade Representative Robert Lighthizer talking about a trade resolution, said: “This is going to take years. We’re not going to resolve these differences very quickly.”
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