How traders can use the US-China conflict to their advantage

How traders can use the US-China conflict to their advantage

When the world’s two largest economies do battle, markets move and big money can be made. With the US and China slugging it out over trade, this is a time of uncertainty for investors worldwide, but it is also an opportunity for currency traders who can harness that volatility. This article is giving you a heads-up so you can take advantage too!

The current conflict between the US and China started way back in January 2018 with US tariffs on Chinese washing machines and solar panels. This has escalated from white goods, with the US now imposing tariffs on over USD 250 billion worth of Chinese imports — and China responding with tit-for-tat tariffs on USD 110 billion worth of American goods.

With the two global powers eager to flex their muscles, neither side appears willing to back down. While this tension is causing significant stress around the world, it is also creating an interesting environment for currency trading.

Rising tensions, rising dollar

How has this trade battle played out in the forex market? Since hostilities opened in January of this year, the US dollar has generally strengthened against the renminbi. The Chinese currency held its own during the first quarter of the year, but since April the USDCNY has risen significantly to a high of 6.86897 in October.

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In this high-stakes conflict, significant developments are felt in the forex market. For example, when two days of talks between Chinese and US negotiators in August ended with no sign of progress, the US dollar saw a sharp drop against the renminbi:

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Where to from here?

Will the US-China conflict escalate further?  Trump has already threatened to introduce tariffs on another USD 267 billion worth of Chinese imports. China's ability to respond with its own retaliatory tariffs is diminishing, as it imports much less from America than it exports. However, Beijing could devalue the renminbi to make its exports more attractive. Although the Chinese deny taking this measure, Trump and a number of analysts believe it is already occurring. 

Both sides face risks. If the US pushes too far, it could put its economy at risk of greater inflation, as US companies and consumers pay more for Chinese materials and products. Meanwhile, any move by China to weaken the renminbi could undermine confidence in the Chinese economy and lead to capital flight.

Seizing the currency trading opportunity

For currency traders, there is opportunity amid the conflict. The US recently reached an agreement with Canada and Mexico to replace NAFTA with a new trade deal. While this ends months of uncertainty regarding trade relationships in North America, it also means the US is now likely to shift more attention to China. And knowing Trump, this probably means more threats and aggression.

If markets feel that Trump is on a roll and can leverage the momentum from the NAFTA deal to push for concessions from China, it is reasonable to assume that the US dollar will continue to strengthen against the renminbi. However, if China still has some fight left in it and the brawl carries on, at some point the US economy and the US dollar could take a hit.

Whatever happens next in the US-China conflict, currency traders should be aware that this volatile relationship presents both risk and reward. Using a stop loss can help traders manage the risk inherent in volatile markets. The reward, on the other hand, can be found amid the short-term trading opportunities that arise as new punches are thrown in this ongoing battle.

The choice is in your hands and access is at your fingertips. Will Trump escalate the conflict? Will the almighty USD continue to rise as a result of the trading wars? Exness is on the ball to make sure our traders get the latest and most valuable information. Login to your Exness account now to take full advantage of these interesting and opportune times while they last.

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