China exchange rate drop could continue into 2020 as it tries to offset US tariff impact, analysts say
- Beijing’s decision to let yuan fall below key 7.0 level against US dollar means it has decided to use yuan as tool to fight the trade war, analysts said
- Some analysts see yuan weakening to 7.2 to the US dollar, about a 5 per cent depreciation from its exchange rate before the start of the trade war
The decline of China’s yuan on Monday to its lowest level in 11 years against the US dollar could continue into 2020 amid the apparent shift in its policy stance by the Chinese authorities, who are showing increasing reluctance to provide concessions to resolve its trade war with the United States.
The Chinese currency’s drop has also rattled the currency market, sending 11 regional currencies lower.
The yuan slid 1.3 per cent to 7.0298 against the dollar on Monday in response to President Donald Trump’s threat to impose a new 10 per cent tariff on the US$300 billion of Chinese imports not yet subject to sanctions, effective from September 1, raising risks to the mainland’s slowing economy. China has vowed to retaliate if the US went ahead with the new tariffs.
The break in the yuan below the key threshold of 7.0 to the US dollar, analysts said, was likely to be a deliberate decision made by the People’s Bank of China (PBOC), China’s central bank, which has now decided that the currency can be part of its arsenal in fighting the trade war.
In a tweet on Monday, Trump hit out at the yuan’s decline, calling it “currency manipulation”. “This is a major violation which will greatly weaken China over time!” he tweeted.