Yuan's Value Plummets Below 7 Against The US Dollar For The First Time In More Than 10 Years

Yuan's Value Plummets Below 7 Against The U.S Dollar For The First Time In More Than 10 Years - Yuan banknote
Bill Cascade   NEW 05/08/2019 00:00:00 Forex

The Chinese Yuan is off to a rather weak start this week with its price plummeting past 7 Yuan per US dollar amid escalating fresh concerns that the China-U.S. trade war will worsen.

The growing concerns about the U.S.-China trade war encouraged a currency sell-off by investors in the Asian region and subsequently, that led to the Yuan's declining value. The Chinese currency dropped to about 7.0424 against the USD during onshore trading and about 7.1097 during offshore trading.

The last time that the Yuan's value dropped past the seven mark was more than ten years ago.

USD/CNY Forex Chart

Source

"This could well be the biggest moment for the Yuan this year. The impact of U.S.-China trade is turning out to be very big," stated MUFG Bank's senior currency analyst Masashi Hashimoto.

Hashimoto also pointed out that the People's Bank of China (PBOC) has been trying to curb the Yuan's decline, which means that the bank is not using the decline to counter the trading pressure from the U.S.

The Yuan started falling sharply on Friday after Beijing announced that it plans to hit back at the U.S after President, Donald Trump, decided to add 10% tariffs on Chinese imports of $300 billion, as of September 1.

Many traders saw President Trump's decision to impose further tariffs as the end of the calm period during which the two countries had agreed to a trade war cease-fire. Trump has been holding talks with China's President, Xi Jinping, since the G20 Summit, held in Japan in June, raising hopes of a deal that would end the long-standing trade war.

The Yuan's decline on Friday was slight compared to the massive spike on Monday with the price surging to a high of 7.0450 from round 6.9429 against the US dollar.

Analysts expect the Yuan to continue weakening, especially because the reasons for maintaining the currency's stability are currently very few. This means that the Yuan's performance now depends on the performance of the local economy.

Yuan anticipated remaining above seven against the USD

The Yuan may stabilize at 7.2 against the US dollar in the third quarter of China's economic growth. Julian Evans-Pritchard, the senior China economist at Capital Economics, believes that the PBOC has probably been preventing the Yuan from weakening to avoid a negative impact on trade talks with the U.S. 

The PBOC has previously made sure that the value of the Yuan does not drop past 7 Yuan per dollar. Some analysts believe that the Chinese currency's current performance might be a sign that China has lost hope of securing a trade deal with Trump's administration.

China will likely allow the Yuan to weaken so that it can ease the pressure that its exporters have been feeling due to the trade war.

Frances Cheung, a macro strategy analyst at Westpac, believes that PBOC will likely implement more easing measures to facilitate growth, especially with the anticipated extra tariffs. Global trade is also expected to experience more tensions due to the failure of China and the U.S. to strike a deal.

 

 

 

 

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