Proposed tax reforms under the Republican administration should result in “massive repatriated offshore funds” which “would, at minimum, support the US dollar on the margin, but would more likely provide a significant US dollar boost in concert with supportive interest rate differential provided the Federal Reserve,” said Stephen Innes, senior trader at OANDA.
It is widely believed that the recent sharp depreciation of the yuan is attributable to the strengthening cycle of the US dollar, with a potential interest rate hike by the Federal Reserve expected next month.
“The move above 6.80 for the yuan was a reflection of the broader US dollar rally, but to a degree, factored a level of uncertainty over global trade,” said Innes.
Innes expects further weakness in the yuan and other regional currencies in the short term, especially tied closely to US trade, such as yuan, the South Korean won and the Taiwan dollar.
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