BUZZ-COMMENT-Only one risk for USD/CNH shorts, but it's a big one

Credit: REUTERS/Thomas White

Aug 27 (Reuters) - One major risk that the yield-hungry, yuan-buying masses are ignoring is the possibility of military conflict between the U.S. and China. While this appears too remote a risk to price in, the needle on the geopolitical stress meter is starting to move again.

On Tuesday Beijing accused the U.S. ofspying on its military exercises . Chinese maritime drills are being conducted in three seas concurrently , and two medium-range missiles were reportedly launched into the South China Sea on Wednesday, in a warning to the U.S. .

There are increasing signs that escalation can be expected , with much riding on U.S. Defense Secretary Mark Esper's planned trip to China. The Pentagon chief wants to de-escalate with increased communication, to avoid mishaps that might trigger confrontation in the Indo-Pacific region, and perhaps even across the Taiwan Strait . But he's treading a tightrope as President Donald Trump continues to make China the bogeyman in his re-election campaign.

Assuming Trump is not betting on a war to improve his chances of staying in office, the yuan could keep appreciating , even with positioning appearing a bit stretched . But for those who already have skin in the game , booking some profits near this year's low of 6.8460 would be prudent.

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(Ewen Chew is a Reuters market analyst. The views expressed are his own.)


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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