US-China trade truce creates steady appreciation for the Yuan (CNY)

The Chinese yuan (CNY) is expected to appreciate steadily toward 7.0 following the recent trade talks between the United States and China, according to a new report from UBS. The discussions have effectively restored the truce previously reached in Geneva, helping to stabilize market sentiment and reduce downside risks for the Chinese currency.

Both nations have shown willingness to compromise during negotiations, with the US potentially easing export controls and China demonstrating flexibility regarding rare earth exports. This diplomatic progress has significantly decreased the likelihood of further tariff escalations between the world’s two largest economies.

UBS projects that US effective tariffs on Chinese goods will stabilize at 30-40%, rather than increasing further. The stabilization in trade tensions, combined with China’s economic resilience, has reduced the immediate need for aggressive fiscal stimulus measures from Beijing.

Despite the reduced pressure for fiscal intervention, UBS anticipates further monetary easing in China as inflation remains subdued. The financial services firm forecasts another 20-30 basis points of policy rate cuts during the second half of the year.

The trade truce creates a more favorable environment for the CNY, which UBS expects will continue an appreciation path toward the 7.0 level against the US dollar in the coming months.