Chinese Yuan Struggles as US-China Trade Optimism Fades

The Chinese yuan is struggling against its major currency competitors on Tuesday as optimism over the first phase in the US-China trade deal diminishes. After initial celebration in financial markets, investors now have some consternation until a formal and written agreement is signed. The yuan was greater impacted by disappointing economic data.

According to the General Administration of Customs, imports tumbled 8.5% in September from the same time a year ago to $178.47 billion. The decline was led by decreases in unwrought copper, steel, rare earth, rubber, and refined products. Exports slumped 3.2% last month to $218.12 billion, led by slides in aluminum, steel, crude oil, rare earth, and rice.
Overall, China’s trade surplus ballooned to $39.65 billion in September, up from $30.26 from last year.
In other data, automobile sales fell 5.2% in September. The 12-month inflation rate climbed to 3%, while the producer price index (PPI) slipped 1.2%.
Global financial markets are worried that the two sides will not sign a deal at next month’s Asia Pacific Economic Conference (APEC) in Chile. The fears were triggered on reports that Beijing wants to engage in another round of talks before formally agreeing to the first phase, which involves buying as much as $50 billion in US agriculture and opening domestic markets to American financial services firms.
Chinese state-owned media have also employed a more cautious tone in their coverage of the agreement. China Daily, the nation’s English-only newspaper, wrote:

As based on its past practice, there is always the possibility that Washington may decide to cancel the deal if it thinks that doing so will better serve its interests.

The US should avoid backpedaling, as it has in the past, and instead cherish what has been achieved as a manifestation of a healthy and steady China-US relationship that serves the interests of both countries and the world.

Treasury Secretary Steven Mnuchin also revealed that the mid-December tariff hikes would go into effect if a deal is not made. He did note, however, that he does think an agreement will be in place by then.
The USD/CNY currency pair rose 0.19% to 7.0807, from an opening of 7.0675, at 12:26 GMT on Tuesday. The EUR/CNY dipped 0.04% to 7.7898, from an opening of 7.7937.

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