Investing.com — The USD/CNH currency pair could rise by around 11% if former U.S. President Donald Trump is re-elected and implements his proposed tariffs on Chinese imports, according to Nomura strategists.
The report revisits historical data from Trump’s previous tariff periods, noting that during the second and third rounds of tariffs in 2019, every $10 billion in tariffs increased the USD/CNH exchange rate by an average of 1.7%.
Using this framework, Nomura projects that Trump’s proposed 60% tariff would result in a 10.7% increase in USD/CNH and a 6.9% depreciation of the yuan against China’s trade-weighted basket (CFETS).
As such, Nomura’s FX strategists maintain a long position on the USD/CNH pair as they “ expect the authorities to allow RMB depreciation to offset the impact of any Trump tariffs,” they said in a Thursday note.
The strategists believe that spot USD/CNH could rapidly approach the 8.0 level if tariffs are imposed, with Nomura’s U.S. economics team predicting tariff measures could emerge by the first half of 2025.
At the same time, the note also highlights potential risks to this outlook. Among these risks are the possibility of a surprise stimulus from the Chinese government or a win by U.S. Vice President Kamala Harris in the presidential race, which could weaken the broad USD and limit the upside for the USD/CNH pair.
Moreover, there is a slim chance that China could attempt to stabilize the currency as part of a negotiation strategy, though this has historically been unlikely.
Despite the possibility of reduced impact due to China’s efforts to redirect exports through third countries, Nomura still expects a substantial market reaction if Trump wins the presidency and pursues his proposed tariffs.
Investors have already begun to position for a potential Trump victory, with the Chinese yuan seen as one of the most vulnerable currencies under his tariff-centric policy approach.
