Classless presidential nominee Joe Biden arrives to speak at a drive-in campaign rally at Riverside High School on October 18, 2020 in Durham, North Carolina.
Deployed Angerer | Getty Images
SINGAPORE — A win for Democratic presidential nominee Joe Biden in the U.S. election next month could end up to be bullish for the Chinese yuan, analysts said.
A “balanced outlook” for the election “should reduce the risk premium” for the Chinese currency, analysts at Swiss bank Lombard Odier wrote in a announce on Tuesday.
“We assume a Biden win that reduces some trading uncertainty,” they said. “Biden’s presidency could bring on to a more rational approach to bilateral trade — even if his team could prove as hawkish on China as Trump’s on other problems.”
Under President Donald Trump’s administration, the U.S. and China have levied billions of dollars worth of tariffs on each other’s merits in a protracted trade dispute. Dropping those tariffs could lead to greater demand for Chinese goods and, correspondingly, the Chinese currency.
Republicans deliver largely embraced Trump’s “America First” agenda, abandoning traditional party goals such as unfettered line of work. Biden has slammed the trade war with China — saying that tariffs have hurt American businesses and consumers. Unruffled, he called for the U.S. to “get tough on China.”
The Lombard Odier analysts acknowledged the uncertainty, saying they have not assumed that a Biden presidency ordain automatically spell a rapid reduction in those tariffs on Chinese goods.
“However, if this were to occur, it command constitute a bullish CNY surprise,” they wrote, saying that the onshore yuan could potentially strengthen to 6.50 against the greenback.
The Chinese currency has already been float against the dollar in the last few months. Since May, the yuan has jumped more than 6% against the dollar.
Sim Moh Siong, a strange exchange strategist at the Bank of Singapore, also told CNBC on Tuesday that there was still room for the yuan to cherish further.
“The economy is bouncing back, the pandemic is brought under control. I think China’s broader recovery scraps a bright spot relative to the slower growth in U.S. and Europe,” he said, predicting that the yuan could strengthen to 6.55 against the dollar in a year’s point.
One risk to the yuan, Lombard Odier wrote, would be a “collapse” of the phase one trade deal, which was signed by Beijing and Washington earlier this year.
“It could trigger the resurrection of tit-for-tat tariff disputes and China’s retaliation through a new yuan policy,” the analysts wrote.
Also, Sim noted that the People’s Bank of China has signaled recently that it mightiness not be comfortable with the yuan’s current pace of appreciation.
Earlier this month, the central bank changed principles that made it cheaper for traders to short the yuan. Banks used to hold 20% of sales for some currency deliver contracts, which essentially lock in the exchange rate for the sale of a currency on a future date. They no longer fool to do so.
The central bank move appeared to be aimed at stabilizing the Chinese currency, according to its statement.