Deals instead of tariffs on China? USDCNH halts gains 📌

The USDCNH halted its latest series of gains following a report published in The New York Times (NYT) that Donald Trump plans a broader deal with China.

Citing advisors to President Trump, NYT states that the strategic agreement between China and the US will extend beyond basic trade relations. Trump is primarily interested in increasing investments between the two countries and boosting demand for American-made goods in China, with mention also made of cooperation for the benefit of nuclear security. According to NYT, Trump is being urged to finalize these deals by, among others, Treasury Secretary Scott Bessent and Elon Musk, who owns a major car plant in China.

Recently, the yuan's exchange rate has been pulled in opposite directions due to uncertainty over US trade policy and the tightening of liquidity in the Chinese market, caused by the withdrawal of 2.4 trillion yuan to repay government loans to the Bank of China. As concerns about further yuan depreciation grew, significant amounts of foreign currency flowed out of the Chinese market. Since July 2024, Chinese banks have conducted foreign currency sales totaling $39.2 billion, but a softer stance on tariffs after Trump's inauguration restored some confidence in the yuan.

The USDCNH exchange rate dipped below the 30-period exponential moving average (light purple; 5 days) in reaction to the NYT article. Buyers turned the rate back toward the previous closing price, but further shifts in Trump's rhetoric toward China (especially specific agreements) could reignite a downward trend in the pair. Source: xStation5