China & Brazil

Currencies on diverging paths?

Paula Attie and Blu Putnam, CME Group

While the US-Mexico-Canada trade war has been settled with the renaming of NAFTA to USMCA, the US-China trade war appears to be entering a worsening phase. At the same time, the Presidential elections in Brazil provided an important change of leadership that may lead to political and financial reforms. And, Brazil is a beneficiary of China redirecting purchases of soybeans and other products away from the US. The net result suggests that the Brazilian Real may gain ground against the US dollar in the coming months while the Chinese Yuan may challenge resistance levels and remain on a weakening path.

Chinese Yuan

During the 2015-2016 period when exports declined, the Chinese Yuan weakened toward CNY 7.00 per USD, before rallying all the way back to CNY 6.30 per USD as global growth synchronized in a positive development that re-stimulated Chinese exports. The US-China trade war has reversed the currency’s path again and led to significant weakness relative to the US dollar. The next stage of the US-China trade war may well move into a new phase. There is a distinct possibility in the spring of 2019 that the US Treasury Department may declare China a currency manipulator, suggesting more tariffs and penalties from the US.

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