Despite near-term volatility, USD-RMB likely to resume gradual upward drift

Surprise Trump-victory is likely to be associated with risk of substantial volatility in global markets and additional deprecation pressures on the RMB. As a reflection of 'risk-off' sentiment in global markets, the USD will likely continue to broadly strengthen against EM FX while losing further ground to the other major reserve currencies, namely, the JPY and the EUR.

The RMB is now a part of the IMF's SDR basket, but it is not considered a 'safe haven' currency. That said, it is interesting to note that, during the U.S. vote-counting period, the RMB (even the CNH) reacted more like the other reserve currencies, and in opposite directions from most other Asian and EM currencies.

The RMB could be relatively resilient in the very near-term, however, the resilience could be short-lived if Trump indicates that he would go through with his 45 percent tariff proposal for imports from China.

"Despite the near-term movements, we believe the USD-RMB should soon resume an upward drift, albeit at a more tempered pace compared to many other USD-EM pairs. Meanwhile, we expect China's FX policy - which has a preference for gradualism, rather than high volatility, in the exchange rate - to play a stabilising role in the market, if necessary," said HSBC in a report.