China’s yuan falls to fresh 10-year low as trade war bites

The Gulf Today - Business - - FRONT PAGE -

SHANG­HAI: China’s yuan fell to a fresh 10-year low against the dol­lar on Tues­day, pres­sured by wor­ries about slow­ing eco­nomic growth and a po­ten­tial sharp es­ca­la­tion in the Sino-us trade war.

The on­shore yuan ended do­mes­tic trad­ing at 6.9613 per dol­lar at 0830 GMT, the weak­est such close since May 20, 2008.

The Chi­nese cur­rency has lost more than 6.5 per cent of its value to the dol­lar since the be­gin­ning of this year, and is down 10 per cent since March, when the first set of tit­for-tat tariffs in the Us-sino trade war were an­nounced.

It is near­ing the closely watched 7 per dol­lar level, which was last hit dur­ing the global fi­nan­cial cri­sis. The mar­ket’s fo­cus has now shifted to whether the cen­tral bank will firmly de­fend that level or let the yuan weaken fur­ther, and how much.

“If the au­thor­i­ties are mind­ful of the po­ten­tial im­pact on sen­ti­ment and cap­i­tal flows, they have to gauge the po­ten­tial neg­a­tive im­pact on sen­ti­ment and over­shoot­ing be­yond 7 if the level is bro­ken,” said Frances Che­ung, head of Asia macro strat­egy at West­pac in Sin­ga­pore.

She ex­pects the cen­tral bank may want to slow any down­side moves and said it was uncertain in the longer-term if there were any par­tic­u­lar lev­els at which they would de­fend at all costs be­yond this.

Prior to the mar­ket open­ing, the Peo­ple’s Bank of China (PBOC) set its of­fi­cial yuan mid­point at 6.9574 per dol­lar, 197 pips, or 0.28 per cent, weaker than the pre­vi­ous fix of 6.9377.

The lower fix came as the dol­lar firmed against its ri­vals, sup­ported by a safe haven bid amid fresh Si­nous trade wor­ries.

Bloomberg re­ported that the United States is pre­par­ing to an­nounce tariffs on all re­main­ing Chi­nese im­ports by early De­cem­ber if talks next month be­tween pres­i­dents Don­ald Trump and Xi Jin­ping fal­ter.

Tues­day’s fix­ing was the low­est guid­ance since May 21, 2008. It was also 87 pips weaker than a Reuters es­ti­mate of 6.9487.

“The news that the US is threat­en­ing a new round of tariffs has weighed on mar­ket sen­ti­ment, but I don’t know how to de­fine a meeting as a ‘fail­ure’,” Zhou Hao, se­nior emerg­ing mar­ket econ­o­mist at Com­merzbank in Sin­ga­pore, said of the planned Trump-xi meeting.

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