China’s trade war with U.S. likely to prolong, CNY and CNH to remain under pressure – Nordea Bank

China’s trade war with the U.S. is expected to prolong, given that both the parties are playing hardball, noted Nordea Bank in a research report. Market sentiment is expected to stay negative, with the CNY and CNH staying under pressure. A currency war has several risks so China might intervene to avoid that.

The trade war with U.S. has heightened with Trump raising the amount of Chinese goods subject to tariffs to a total of USD 250 billion. He also threatened to ultimately tax all imports from China but so far only gave details to USD 250 billion, noted Nordea Bank.

China continued to keep its defensive strategy and displayed no willingness to back down. China announced retaliation tariffs of USD 60 billion in early August, making the total amount of American goods subject to tariffs to USD 110 billion.

The Trump administration is overlooking the trade war having possible adverse effects on the U.S. China might rather endure the negative impact from the trade war than concede to U.S. demand, stated Nordea Bank.

The deteriorating conflict has affected market sentiment in China more than in the U.S. The CNY depreciated 7 percent against the USD and 5 percent against the basket since mid-June.

“Although a weaker yuan is tempting to Beijing, we do not think it is interested in a currency war, which bears many risks. At the same time, there are also costs to heavily intervene in the FX market to counter market pressure. Thus, the CNY and CNH will remain under pressure but not likely allowed to weakened too much further”, added Nordea Bank.

At 20:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was slightly bearish at -66.9266, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -9.15998. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex