Investing.com — The currency pair could rise about 11% if former U.S. President Donald Trump is re-elected and implements his proposed tariffs on Chinese imports, Nomura strategists said.
The report reviews historical data from Trump’s previous tariff periods and notes that during the second and third rounds of tariffs in 2019, every $10 billion in tariffs increased the USD/CNH exchange rate by an average of 1.7%.
Based on this framework, Nomura expects that Trump’s proposed 60% tariff would result in a 10.7% appreciation of the USD/CNH and a 6.9% depreciation of the yuan against China’s trade-weighted basket (CFETS ).
As such, Nomura’s FX strategists maintain a long position on the USD/CNH pair as they “expect authorities to allow RMB depreciation to offset the impact of any Trump tariffs,” they said on Thursday in a note.
The strategists believe that spot USD/CNH could quickly approach the 8.0 level if tariffs are imposed, with Nomura’s US economics team predicting that tariff measures could come in the first half of 2025.
At the same time, the note also highlights the potential risks to this outlook. These risks include the possibility of a surprise boost from the Chinese government or a victory by US Vice President Kamala Harris in the presidential race, which could weaken the broad USD and limit upside potential for the USD/CNH pair to limit.
Furthermore, there is a small chance that China could attempt to stabilize the currency as part of a negotiating strategy, although this has historically been unlikely.
Despite the possibility that the impact will diminish due to China’s efforts to divert exports through third countries, Nomura still expects a substantial market response if Trump becomes president and follows through with his proposed tariffs.
Investors have already started positioning for a potential Trump victory, with the currency seen as one of the most vulnerable under his tariff-oriented policy approach.
