USD/CNY is resting at six-month lows now as China continues to make good on its currency pledge with the US in the Phase One trade deal. But this is just a bit of a corrective movement after the fall in the yuan at the start of August last year.

In looking at the yuan this year, there’s going to be two sides of the equation.

On the one hand, China would prefer a weaker currency to deal with US tariffs. On the other hand, China would prefer a stronger currency if it is to step up purchases from the US – in trying to achieve the $200 billion set out by the trade deal.

Put those two together and the fact that China gave the US the same pledge as it has been promising the G20, I reckon we can expect the yuan to find more stability this year – once Chinese officials settle on where it feels the right balance should be.

Once the currency settles into that “sweet spot”, we can expect some mild movement around 2% up or down from time to time but I wouldn’t expect a significant move like what we saw in trading last year – especially the August incident.

The caveat is that all of this hinges on the US-China Phase One agreement being able to last. So, let’s see how that shapes up during the course of the year.