|Yuan could weaken past 7.5 per dollar if Trump hikes tariffs further, strategist warns|
|Author: CSEBA / CNBC|
|7th August 2019|
|NEW YORK - The yuan may weaken beyond 7.5 against the U.S. dollar if President Donald Trump kicks tariffs up to 25% on the recently threatened $300 billion of Chinese goods, says Bank of America Merrill Lynch.|
China’s currency has gotten greater attention in recent days after Beijing allowed the yuan to weaken past the important psychological level of 7 per dollar for the first time since the global financial crisis.
That depreciation came after Trump threatened to slap 10% tariff on $300 billion of Chinese goods starting Sept. 1. If that goes ahead, the U.S. dollar-Chinese yuan exchange rate may touch 7.3 by the end of 2019, weaker than an earlier forecast of 6.63, the BofAML predicted.
If that tariff rate increases to 25%, “you’ll be looking at CNY beyond 7.5 levels” assuming existing economic and financial conditions don’t change, Rohit Garg, a currency and rates strategist at the bank, said Wednesday.
China’s move tells you that the U.S. doesn’t have all the balls in this game, the Chinese can mess up this dollar weakening desire of Donald Trump very easily.
Many analysts have said they expect Trump to hike tariffs on all Chinese goods to 25% after the recent escalation in the U.S.-China fight. Such an elevated tariff rate would hurt sentiment further and the U.S. Federal Reserve would likely step in to stem some negativity, Garg told CNBC’s “Squawk Box.”
The Fed “would sound more dovish, it would actually go ahead and cut rates,” he said. That means it may be “difficult for the dollar to actually rally as much,” he added.