Looking at the Yuan, Bloomberg's macro commentators Mark Cranfield correctly writes that "any downside extension for USD/CNH after President Trump left the phase one trade deal untouched will be short lived. There is enough uncertainty over the U.S.-China relationship to maintain an underlying bid for the dollar."
Cranfield is right, if for another reason: while Trump may have left the Phase 1 trade deal in place for now, at this point this is purely theater, for the simple reason that China is woefully behind on its signed contractual commitments to import a set quantity of US agircultural, energy, and manufacturing exports.
As Goldman writes over the weekend, "there is a clear risk—if not a likelihood—that US exports to China will fall short of the Phase 1 deal." So far, the Administration appears to be taking a wait-and-see approach to this and could continue to do so for a while, since the export targets were intended to be met over a 1-2 year timeframe, and the deal was only signed four months ago. But if Trump decides that China has not met its commitments under the Phase 1 trade deal - which it clearly hasn't - he would take the initial step of taking the tariff rate on Tranche 4A back to 15%, according to Goldman.
As a result, while ignoring Trump headlines looks to be the right strategy in the short term for traders, Cranfield notes that this "may change when the U.S. election race gets into prime time." So while record highs for USD/CNH may have been delayed after last week's all tim ehigh, "they are still the path of least resistance in the weeks ahead", according to the Bloomberg commentator.
And just to give the yuan selling a kickstart higher, here is Mike Pompeo on Fox News, pouring some more gasoline on the raging dumpster fire that is US-China relations, saying that "this is a Chinese Communist Party that has come to view itself as intent upon the destruction of Western ideas, Western democracies, and Western values. It puts Americans at risk, whether it’s stealing American intellectual property or destroying jobs here in the U.S."
This is a Chinese Communist Party that has come to view itself as intent upon the destruction of Western ideas, Western democracies, and Western values. It puts Americans at risk, whether it’s stealing American intellectual property or destroying jobs here in the U.S. pic.twitter.com/89JlUuARro— Secretary Pompeo (@SecPompeo) May 31, 2020
Hardly the stuff one hears if de-escalation is just around the corner.