China is one of the biggest economies of the world and also home to one of the world’s largest online marketplaces – Alibaba. With that in mind, the US China trade deal has significance way beyond impacting the two nations concerned and has the ability to move currency markets – again of interest to marketplace sellers, not just for selling on marketplaces but also because if you import stock it directly affects the cost to you as currencies move.
Despite a huge upheaval in geopolitical tensions, the currency markets have had a slow start to 2020. The currency experts at WorldFirst expect sleeping giants to awaken in the not too distant future, but for now are looking at the impact of “Phase 1” of the US China trade deal and how it can affect trade and currency markets.
Key Major Currency Moves, year to date
- USDCHF has gained 1.20%
- USDJPY has gained 2.00%
- USDCAD has gained 1.20%
- USDAUD has gained 2.60%
- USDCNH is down 1.30%
- GBPUSD is down 2.42%
“Essentially, Phase 1 provides a staged de-escalation of the trade war to appease global market tensions and assure big businesses that conversations are moving in the right direction. In addition, having these talks conveniently held ahead of US Presidential elections in November is certainly no coincidence, with Trump wanting to prove his deal-making credentials in his pitch to voters for a second term. However, with a lack of concrete evidence and the knowledge that the more complex negotiations have been assigned to Phase 2, the markets may well pick apart the progress rather quickly and cynically. If that is the case, whilst the USD has started well this year, it may become an easy target to sell-off.”
– Alistair Hutson, Private Dealing Manager, WorldFirst, and the WorldFirst Commercial Team
At this moment in time, the US have imposed a 21% tariff (versus 3% previously) on imports from China and there’s no sign that this will change in the next few months leaving global trade a long way short of the norms we’ve come to expect in recent years. WorldFirst expect the tariffs to remain in place for at least a year. Whilst this has reduced volatility in the money markets, it’s leaving guess work for investors and traders all waiting to see what will happen in the future and what “Phase 2” of the US China trade deal could bring.
Hedging to bring certainty
With the combination of risk and uncertainty, WorldFirst are advising hedging money on a quarterly basis. This effectively means if you’re placing orders for your summer stock from China to be paid for in a couple of months’ time, it makes financial sense to fix the price you’ll buy currency in today thus bringing some certainty to your financial planning for the next few months.
If you’d like to find out more about hedging, speak to your WorldFirst account manager or sign up for an account today.
