So far, the Chinese currency has not responded to the US tariffs with a major devaluation. But many small devaluations can add up to a big effect. USD/CNY rose as high as 7.35 this morning, the weakest level for the CNY since 2007. The People's Bank of China (PBoC) has been steadily raising its USD-CNY fixing in recent days, signalling to the market that it is comfortable with a gradual depreciation of the CNY, Commerzbank's FX analyst Volkmar Baur notes.
USD/CNH continues to trade above USD/CNY
"The PBoC sets a daily reference value for the USD/CNY exchange rate around which the market-traded rate is allowed to fluctuate by 2% before the central bank itself intervenes or instructs the state banks to do so. In purely mathematical terms, the rate could have risen to 7.3507 in today's trading, so the market used almost all of its room for manoeuvre today."
"In contrast, the more freely traded USD/CNH continues to trade above USD/CNY, suggesting that the market is speculating that the PBoC will raise its fixing rate further in the coming days and allow the CNY to depreciate further."
"With the additional 84% tariffs that came into effect a few minutes ago, on top of the 20% tariffs already imposed in February and March and the tariffs from Trump's first term, bringing the tariff rate on Chinese exports to the US to over 100%, the CNY is expected to depreciate further against the US Dollar."
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