Yuan Likely To Slip Some More If The U.S-China Trade War Maintains Current Intensity
China and the U.S. have been locked in a trade stalemate for quite some time now, a situation that has weighed heavily on the Chinese Yuan whose value continued to weaken against the US dollar.
Analysts believe that the People’s Bank of China (PBOC) will continue to let the Yuan slip further against the dollar in an attempt to shield from the effects of the additional tariffs imposed by the U.S. government. U.S. President Donald Trump imposed additional tariffs on Chinese products worth $30 billion, and those tariffs kicked off this week.
PBOC set its mid-point range for the Yuan at its 11 and a half year low against the US dollar. This comes just a few weeks after Chinese authorities decided to let the Yuan drop past the key level of 7 Yuan per dollar. This was an indicator of just how rough things had gotten between the U.S. and China as far as their trade standoff is concerned.
The declining performance of the Yuan is evident in the USD/CNY exchange rate performance and also evident is the impact of news relating to the trade war. For example, China confirmed on Thursday that it plans to resume trade negotiations with the U.S. as of next month.
The USD/CNY exchange rate was bullish at the start of this week on account of the tariff rollout by the U.S. However, its overall bearish performance on Wednesday indicates that it was cooling down and this is mainly due to the U.S dollar’s weakening performance on Wednesday.
The USD/CNY currency pair rode the wave of bullish momentum on Thursday morning with the price surging from as low as 7.1243 to a high of 7.1464 at the time of this press.
This bullish performance on Thursday might have been triggered by the Yuan’s weaker stance against the dollar as investors expect Chinese authorities to maintain tight control of the currency.
The trade situation is still very volatile between China and the U.S.
Analysts have also expressed concerns over the increasing possibility that the U.S. will retaliate. Trump previously expressed disappointment in China for what he described as currency manipulation. A recent poll by Reuters that involved 60 strategists suggests that China is willing to continue allowing the Yuan to slip as long as the trade war with the U.S. continues.
The good news is that both sides have expressed interest in holding talks to try and bring the over-extended trade war to an end.
The Chinese currency will likely recover to levels below 7 Yuan per US dollar if the governments of the two countries manage to find a middle ground that will lead to the end of the trade war.
So far, the effects of the trade war have been far-reaching and have even contributed to the slowed global economy. It has also affected many businesses in both China and the U.S. as well. It is, therefore, in the interest of both parties to end the trade dispute.