Investing.com – The currency pair could rise by around 11% if former US President Donald Trump is re-elected and implements proposed tariffs on Chinese imports, according to Nomura strategists.

The report re-analyzed historical data from previous Trump tariff periods and noted that during the second and third rounds of tariffs in 2019, each $10 billion in tariffs resulted in an average escalate in the USD/CNH exchange rate of 1.7%.

Using this framework, Nomura predicts that Trump’s proposed 60% tariff will result in a 10.7% escalate in the USD/CNH exchange rate and a 6.9% depreciation of the yuan against China’s trade-weighted basket (CFETS).

As such, Nomura’s currency strategists are maintaining a long position on the USD/CNH pair as they “expect authorities to allow the yuan to depreciate to offset the impact of possible Trump tariffs,” they wrote in a note on Thursday.

Strategists believe the USD/CNH spot rate could quickly approach 8.0 if tariffs are imposed, and Nomura’s US economics team predicts tariff measures could arrive by the first half of 2025.

At the same time, the note draws attention to the potential risks for this prospect. These risks include the possibility of an unexpected stimulus from the Chinese government or US Vice President Kamala Harris winning the presidential race, which could weaken the broad USD and limit the growth of the USD/CNH pair.

Moreover, there is a slight chance that China will attempt to stabilize the currency as part of its negotiating strategy, although this has been unlikely in the past.

Despite the potential for reduced impact due to China’s efforts to divert exports through third countries, Nomura still expects a significant market reaction if Trump wins the presidency and continues with his proposed tariffs.

Investors have already started positioning for a potential victory for Trump, which is seen as one of the most sensitive currencies under his tariff policy.