China lets yuan slump past 7 per dollar for first time in over decade as trade war escalates

  • 05/08/2019
China lets yuan slump past 7 per dollar for first time in over decade as trade war escalates

China on Monday allowed the yuan to fall above a key level of 7 per dollar for the first time in over a decade, which is a sign that Beijing may be ready to put up with a future weakening of the currency in the face of the growing trade dispute with the United States.

The yuan fell by 1.4% after the People’s Bank of China (NBK) set the daily midpoint of the CNY = PBOC currency trading range at 6.9225 per dollar, the lowest since December 2018.

The RMB shock occurred a few days after US President Donald Trump stunned the financial markets, promising to introduce 10% tariffs for the remaining $ 300 billion. Chinese imports from September 1, suddenly violating a short-term cease-fire during a month-long trade war.

After the opening of the coastal session at the level of 6.9999 per dollar, CNY = CFXS undermined to 7.0666 per dollar to 0351 GMT, dropping 1.2% a day earlier, losing up to 1.4% of its value. On Monday, for the first time since May 9, 2008, the yuan overcame level 7 per dollar.

Analysts believe that due to the exacerbation of the trade war, which gives Beijing fewer reasons to keep the stability of the yuan, the currency will keep weakening.

Julian Evans-Pritchard, senior economist for the economy of China, said that the NBK probably refrained from letting the weaker yuan escape from disrupting trade talks with the United States.

The NBK gave some hints about its plans. In a statement on Monday, the central bank attributed the weakness of the yuan to the effects of the trade war, but said it would not modify its monetary policy and that fluctuations in the value of the yuan in two directions were normal.

Earlier, analysts had claimed that the authorities would restrain depreciation due to worries about possible capital outflows.

In 2015, China surprised the international financial markets, having devalued the yuan by 2% as its economy slowed down. He spent $ 1 trillion in foreign exchange reserves to stabilize it.

But falling on Monday after a level of 7 per dollar could further exacerbate the economic conflict between the United States and China. Trump has long criticized Beijing for manipulating its currency to obtain a trading benefit, and the further weakness of the yuan may cause Washington's anger.

Shares were also struck by a sharp drop in Hong Kong stocks, which is affecting the general market, said Jerry Alfonso, director of Shenwan Hongyuan Securities Co., in his e-commentary.

The Shanghai Composite Index .SSEC base index decreased 0.81%, and the CSI300 index with blue chips CSI300 lost 1.03%.

Emphasizing the growing influence of trade pressures, agricultural commodity prices rose after reports that China asked state-owned companies to half import US agricultural products. Chinese futures for soybean flour DSMcv1 went up by over 2%, while rape flour futures increased 3%.

But DCIOcv1 futures for Chinese iron ore in Dalian fell to their lowest level since July, while London copper reached its lowest level in the last two years, as investors feared that the trade war would hurt international growth and requirement for metals.

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