The renminbi is in a steep downtrend as traders remain concerned about the state of the Chinese economy as the trade war escalates. The USD/CNY exchange rate rose to a high of 7.3495, its highest level since 2008. It has jumped by over 16% from its lowest point since 2022, and technicals suggest that it may soar to 8.
China and US trade war continues
This surge continued this week after the People’s Bank of China (PBoC) allowed to weaken in hopes that it will help to support the economy.
China is an export-oriented economy, where it sells most of its goods to countries like the United States, Canada, European Union, and those in Asia.
In most cases, export-dependent countries prefer their local currencies is weak as this makes their goods more affordable abroad.
Therefore, the USD/CNY has soared as the government hopes to offset the impact of tariffs on the economy.
This sell-off escalated as relations between the two countries worsened. Donald Trump increased tariffs on Chinese goods by 10% in February and another 10% in March. He then boosted these numbers by 34%, which he said was the reciprocal tariff that Beijing charged the US.
In its response, China announced that it would start charging US goods a 34% retaliatory tariff, a move that angered Trump, who threatened to boost its tariffs by 50%.
The US confirmed that it would charge a 104% tariff on Chinese goods arriving at its ports. This includes goods by companies like Shein and Temu that arrive to the US without paying any tariffs because of a key loophole.
China has vowed to fight to the end, meaning that this trade war may continue in the next few months. Analysts believe that this trade war, if it continues, could hurt the Chinese economy and impact its goal to attain a 5% growth rate.
On the positive side, the US stock market is imploding, losing about $10 trillion in the last week alone. The Dow Jones and S&P 500 futures dropped by over 1% on Wednesday as these tariffs took effect.
Therefore, there is a likelihood that the US and China will begin trade talks soon since Trump sees the stock market as the best gauge of his presidency. Also, the administration has sounded optimistic of trade negotiations with 70 countries.
USD/CNY technical analysis
USD/CNY chart by TradingView
The weekly chart above shows that the renminbi has crashed in the past few days. The USD/CNY pair rose to a high of 7.3500 as it crossed the crucial resistance point at 7.3430. This price was the upper side of the ascending triangle pattern, one of the most bullish chart patterns in technical analysis.
The USD to CNY pair has remained above the 50-day and 100-day moving averages, a sign that bulls remain in control.
Therefore, there is a likelihood that the pair will keep rising as bulls target the key resistance level at 8.05. This price target is derived by measuring the longest part of the triangle, and then measuring the same distance from its upper side.
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