Chinese yuan hits 11-month low amid trade war jitters

ING’s China economist Iris Pang also blames Trump’s tariffs for causing the yuan’s decline, saying:

“Today’s depreciation is market-driven, reflecting the risks of a trade war.

This implies that the central bank is allowing market forces to dictate the speed of the depreciation when there is room to do so.”

Chinese banks scrambled to prop up the yuan after it fell through the 6.7 level against the US dollar this morning.

Bloomberg explains:

Chinese banks were seen selling dollars after the yuan weakened past a key level, stoking speculation that authorities were seeking to slow the losses.

The yuan was 0.5% lower at 6.6981 per dollar at 11:31 a.m. in Shanghai after earlier falling to 6.7204. Some Chinese major banks sold the dollar in the swaps market, according to four traders.

The agenda: Chinese yuan weakens as Trump holds firm on tariffs US Dollar and China Yuan notes Photograph: Thomas White/Reuters

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

There’s no escape from trade war fears today. Asian stock markets have fallen to their lowest levels since last autumn, after Donald Trump refused to cave into international pressure over his tariffs.

A volatile day’s trading saw China’s Shanghai Composite index shed another 1.9% to a 28-month low, before rebounding in a late rally.

The Chinese yuan also had a bad day, sliding against the dollar to its weakest level in almost a year.

Both the onshore and offshore yuan have fallen through the 6.7 per dollar level for the first time since August 2017.

The selloff suggests that Asian investors have been badly shaken by the looming tit-for-tat tariffs between China and America.

US tariffs on $34 billion of Chinese products are due to kick in on July 6, with China set to retaliate with duties of its own on the same value of American goods.

A trade was could hurt China’s economy badly, at a time when Beijing is trying to tackle its shadow banking sector and continue the evolution from a manufacturing-driven economy to a services-led one.

Chinese yuan slides to fresh 11-month low. Onshore yuan as low as 6.7168/$, offshore yuan 6.7326/$. Spread between offshore and onshore yuan continues to widen – briefly widest since Feb – reflecting mounting selling pressure from international investors.

— Jamie McGeever (@ReutersJamie) July 3, 2018

Hussein Sayed, Chief Market Strategist at FXTM, says the sharp depreciation in the Chinese currency is worrying investors.

He reminds us that a similar slump three years ago spooked the global markets:

In August 2015, USD-CNY appreciated from 6.21 to 6.44, a two-day gain of 3.85%. As a result, global stock markets sold off sharply as investors feared the beginning of a currency war. With trade tensions increasing day by day, Beijing might be playing this game as a tool in its trade war with the U.S. However, such a strategy will be a double-edged sword as it might also lead to a flight of capital which the PBoC is well aware of.

Although the Chinese currency depreciated 3.23% in June, it didn’t sound quite so alarming, given that the Dollar appreciated against most major currencies in May and June. Going forward it’s going to be about the pace and magnitude of the currency moves that will drive equity markets. CNYUSD traded at 6.70 at the time of writing and will keep a close eye on 6.96, the lowest level reached in January 2017.

The White House is pressing on with its plans to penalise trading partners unless they give America a better deal.

Yesterday, president Trump insisted that the World Trade Organisation must reform, after “treating us very badly for many, many years.”

A new healthcheck on Britain’s builders is published this morning. The construction PMI is expected to show another month of slow growth, as the collapse of Carillion in January continues to ripple through the sector

European stock markets are expected to rise, after Angela Merkel reached a deal on migration with interior minister, Horst Seehofer that should prevent her coalition from collapsing.

We also get new eurozone retail sales and US manufacturing orders data, which will show whether trade war fears are having an impact.

The agenda

  • 9.30am BST: UK construction PMI for June
  • 10am BST: Eurozone retail sales for June
  • 3pm BST: UK factory orders for May

This article provided by NewsEdge.