CNY: Goldman Sachs Still Expecting USD/CNY Fix TO Gravitate Higher
Goldman Sachs: "CNY: The expectations game. The 10% tariff imposed on China (with few exceptions so far) already raises the effective rate equivalent to the entirety of Trade War 1.0. But you wouldn’t know that from the reactions in Chinese assets. To a large extent that reflects expectation management. The imposed 10% is much lower than large numbers like 60% tariffs on China that were threatened ahead of the election, and in fact much of the post-election tariff bluster has instead been focused on allies such as Canada, Mexico and Europe. More lately, talk of reciprocal tariffs would also leave China relatively unscathed compared to other EMs such as India and/or Brazil. On the China side as well, the response to the 10% tariff imposition has been far less than proportional, the commentary notably restrained, and the USD/CNY fix moved slightly stronger from ~7.19 to ~7.17. At the same time, a combination of better earnings and sentiment around China tech stocks has propelled the offshore index beyond its 2024, post-stimulus optimism highs; confirming that if policy tails are avoided, there may be greater scope to price relief in non-US assets. Whether this calmer, more constructive backdrop in Chinese markets extends is still an open question however, and much will depend on whether further US trade actions are more disruptive than investor expectations. Our economist baseline still calls for additional 10% tariffs on China plus tariffs on critical exports, and if this combination or something more is delivered in coming months, we would expect to see the USD/CNY fix start to move higher again. While the CNY is a hard currency to value – as Treasury Secretary Bessent confirmed yesterday – that would push it further into undervaluation territory versus the Dollar on our metrics."
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
FED: MNI Fed Preview-Jan 2025: Keeping Rate Cut Hope Alive
We've just published our preview of the January FOMC meeting:
- The FOMC will keep the benchmark Fed funds rate on hold on January 29 for the first time in four meetings, as it shifts to a more patient phase of its easing cycle after delivering 100bp of cuts.
- The forward guidance adopted in December points to a data-dependent approach to assessing the “extent and timing” of additional rate adjustments. To this end, there has been only limited inflation and labor market data since then, while the Trump administration’s policies and their potential impact on the economic outlook are still in a formative stage.
- With minimal Statement changes expected and no new rate/macro projections, the focus will be on Chair Powell’s press conference which will likely repeat the same themes heard six weeks earlier.
- As such, the risks to the market reaction to the meeting lean slightly dovish in the context of only one more full rate cut being priced for the cycle.
- While he won’t be able to add any additional commentary on the Fed’s response to prospective fiscal/trade/immigration policy shifts, we suspect Powell will remain optimistic on the inflation trajectory and reiterate that 50bp of cuts remain the FOMC’s baseline scenario this year. In other words, the bias toward easing remains intact.
- Additionally, Powell probably won’t completely rule out another cut as soon as the next meeting in March, while being careful to couch any future moves as data- and outlook- dependent, and emphasizing that the Fed can afford to be patient so long as the economy and labor market remain solid.
Note to readers: MNI’s separate preview of sell-side analyst summaries to follow on Monday Jan 27
MACRO ANALYSIS: MNI US Macro Weekly: Fed Remains Firmly On Track To Hold
- Data in the week ahead of the January Fed meeting was thin and overall mixed, with President Trump’s apparently softer tone on tariffs helping implied rates soften slightly toward end-week.
- January’s preliminary Services PMI reading unexpectedly fell to its lowest since April 2024, though had some slightly less dovish details.
- Weekly continuing claims provided a surprise on the weak side, just exceeding recent highs, but the broad report (including initial claims a touch higher than expected) didn’t materially change the story of firms dampening down on re-hiring rather than turning to layoffs to manage headcount.
- Looking ahead to next week, the FOMC will keep the benchmark Fed funds rate on hold on January 29 for the first time in four meetings. With minimal Statement changes expected and no new rate/macro projections, the focus will be on Chair Powell’s press conference.
- He won't totally rule out a cut at the next meeting in March, but he’ll probably reiterate that the Fed can remain patient on its next move until receiving more clarity on both inflation data and the government policy outlook (i.e. not until later in the year). Markets continue to price between 1 and 2 cuts by end-2025.
- Aside from Tuesday’s preliminary durable goods report, data for the coming week is backloaded with the highlights being the first estimate of real GDP growth in Q4 on Thursday before the monthly PCE report for December on Friday.
PLEASE FIND THE FULL REPORT HERE:
USDCAD TECHS: Key Support Holds For Now
- RES 4: 1.4663 2.0% 10-dma envelope
- RES 3: 1.4564 3.500 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 2: 1.4539 3.382 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 1: 1.4516 High Jan 21
- PRICE: 1.4327 @ 16:10 GMT Jan 24
- SUP 1: 1.4261 Low Jan 20
- SUP 2: 1.4245 50-day EMA
- SUP 3: 1.4120 Low Dec 11
- SUP 4: 1.4011 Low Dec 5
USDCAD has traded in a volatile manner this week. Recent price action highlights an important short-term resistance at 1.4516, the Jan 21 low and a support at 1.4261, the Jan 20 low. The trend condition remains bullish and a clear breach of 1.4516 would confirm a resumption of the bull cycle. For bears, a clear break of 1.4261 and 1.4245, the 50-day EMA, would instead highlight a possible reversal.
