Mnuchin cools talk of trade war with China through measured remarks on yuan

PUBLISHED : Saturday, 25 February, 2017, 7:36am
UPDATED : Saturday, 25 February, 2017, 7:36am

US Treasury Secretary Steven Mnuchin’s comments on whether to brand China a currency manipulator signal reduced chances of a trade war and are positive for the yuan, according to Royal Bank of Scotland Group Plc.

The two nations will seek to limit any conflict to a controllable level, said Harrison Hu, chief greater China economist at RBS in Singapore. The onshore yuan was little changed at 6.8730 per dollar in Shanghai, while the spot rate in Hong Kong retreated 0.1 per cent.

Mnuchin signalled no urgency to designate China a currency manipulator, saying in an interview Thursday that he wants to use a regular review of foreign-exchange markets to determine if the US’s largest trading partner is cheating. His comments came even as President Donald Trump described China in an interview as a “grand champion” at currency manipulation.

“Mnuchin’s comments have significantly eased concerns on the black swan event of US naming China a currency manipulator,“ said RBS’ Hu. ”Trump won’t likely wage a broad trade war that would lead to turmoil in the financial markets“ although the US may still roll out protectionist polices on China, such as by raising tariffs for specific products, he added.

The perception that Trump is softening his rhetoric toward China has helped the nation’s assets this year. The yuan has rallied 1 per cent in 2017 amid a broad dollar decline, while Hong Kong’s benchmark equity index is among the world’s top performers with an 8.9 per cent advance as China’s economy stabilised.

Yuan weakens after Mnuchin says he won’t label China a currency manipulator for now

Mnuchin’s comments means the odds of China being labelled a currency manipulator have declined, and the room for further depreciation in the yuan is shrinking, China International Capital Corp. economists Yu Xiangrong and Liang Hong wrote in a note on Friday.

“It was another affirmation that the US’ stance has softened,“ said Christy Tan, head of markets strategy in Hong Kong at National Australia Bank. ”The impact on markets will be along the line of risk appetite extending for assets and currencies, such as the Korean won, the Taiwan and Singapore dollars and the yuan, with the soft dollar as the main backdrop.”