China is considering softer currency
China is considering allowing the yuan to weaken in 2025 to brace for higher trade tariffs in a second Donald Trump presidency, citing people familiar with the matter.
Foreign exchange markets moved on the news, with the yuan falling about 0.3% to 7.2803 per dollar and China-sensitive currencies such as the South Korean won and New Zealand dollar slipping.
"It's tempting to think that Chinese currency weakness could fully offset the tariffs in the U.S. and kind of neutralise the impact on the economy.
"The Chinese leadership is likely also to be mindful about the impact of a weaker Chinese currency on other trading partners.
"If China takes the currency aggressively lower, it raises the risk of a tariff cascade there is a bit of a risk here that if China uses its currency angle too aggressively, it could lead to a backlash among other trading partners and that's not in the interest of China.
China recently said that nobody wins in a race to the bottom, but that doesn't mean they're not prepared to play along. Now we just need to see a slightly hotter U.S. inflation print to send USD/CNH above 7.3 to help AUD/USD fall to 63c.(Cay)
Source: Investing.com
