Analysts at Deutsche Bank note that, since the resumption of trade talks, markets have significantly reduced their bearish RMB positions.

• “DTCC data shows that around 40% of long USD/CNH trades have been unwound since the comment on 4th of September suggesting talks might get back on track. This is similar to what happened following the Osaka meeting earlier this year.
• In addition, based on a simple relationship with weighted average tariffs imposed on imports from China, and the move in USD/CNH; the market is effectively pricing in not just a suspension in tariffs at current levels (7.08 as of writing) but in fact part/ complete reversal of the last round of tariffs (15%) imposed on around $110bn of goods at the start of this month.
• We think given the multiple potential catalysts for escalation – intervention in HK (a US Congress bill on Human Rights could prove very contentious), US sales of F-16s to Taiwan, etc. – the risk is again skewed towards disappointment versus what is in the price.”