Yuan Takes Another Hit With Its Price Reaching 11 Year Low As Trade War Risks Escalate
The Chinese Yuan is off to a rocky start this week following a massive slump that saw its price drop to the lowest point in 11 years during offshore trading. This decline is attributed to the extended trade war between China and the U.S. and subsequently causing investors to lose confidence in the Yuan.
Economic tensions drew higher during the weekend courtesy of the confusing statements made by U.S. President Donald Trump.
POTUS announced on Friday that he would raise tariffs on Chinese products valued at $250 billion. He revealed that the tariff increment would go up from the current 25% to 30% in October this year. However, Trump brought confusion during the weekend after he stated that he was second-guessing the tariffs.
China also responded to Trump’s tariff threats by threatening to impose higher tariffs on U.S. products imported into China. Consequently, Trump proved that he was not willing to be the first to bow to the trade war pressure. He urged U.S. firms to look for other markets where they can sell their products.
The White House clarified the matter on Sunday through a statement revealing that President Trump meant that he would raise tariffs on the Chinese imports. More tariffs on China’s U.S.-bound exports will place more pressure on Chinese manufacturers and subsequently China’s economy.
Takuya Kanda, the General manager in charge of the research division of Tokyo-based Gaitame.com Research Institute, noted that China's economy is cooling down.
The Yuan's decline was evident in the USD/CNY currency pair's exchange rate, which traded at a low of 0.0960 on Monday morning before a massive spike that is consistent with the Yuan’s fall. The exchange rate hit the day’s high at 7.1527, and it traded at 7.1511 at the time of this press. The last time that the Chinese Yuan traded at levels, this low was more than a decade ago.
The impact of the new tariff threat was also felt in the U.S.
Trump’s announcement about the extra tariffs also influenced the U.S. stock market with some stocks losing value on Friday.
Meanwhile, in Asia, the 10-year U.S. Treasury yield (US10YT=RR) experienced a 1.4560% decline, which is its lowest reported in the last 36 months. There have also been concerns over the inversion of the 2-year debt yield curve. It inverted for the first time in 10 years earlier this month.
Upcoming economic data scheduled to be released this week is expected to help investors make a better analysis of the market and especially the impact of the China-U.S. trade war. There will also be a revised Q2 GDP growth estimates for the U.S. economy, and it will focus on trade and orders involving durable goods. Earlier estimates predicted a 2.1% annual economic growth rate for the U.S. in Q2, which is slower than the 3.1% growth rate that the U.S. economy achieved in Q1 2019.
The Japanese Yen is one of the winners in the U.S.-China trade war as one of the major safe havens; thus its current attractiveness to investors. Some other currencies such as the New Zealand dollar and the Australian dollar also jumped on the downtrend.
Meanwhile, China has expressed its interest in resolving the trade dispute with the U.S. to avoid further escalation of the matter.