China’s yuan exchange rate set to post largest monthly decline since 1994
- Yuan falls 3.8 per cent against the US dollar in August, the largest decline since China unified its two exchange rates more than 25 years ago
- Analysts expect China to let the yuan continue to depreciate to offset the impact of higher US trade tariffs
China’s yuan exchange rate is set to post its largest monthly decline in more than 25 years, as the Chinese government let the partially convertible currency depreciate in response to higher US trade tariffs and a weakening export outlook.
The yuan is on course to record a 3.8 per cent drop against the US dollar in August, marking the biggest monthly decrease since January 1994, when China completed a major overhaul of its currency regime by unifying its dual exchange rates.
The yuan is the worst performer in August among Asia’s 11 most-traded currencies after India’s rupee, which fell 3.9 per cent this month.
Many brokers have cut their forecasts for the yuan this year, because Chinese authorities are expected to reduce their support for the value of the currency to help offset the impact of increases in US tariffs given China’s weakening export and economic outlook.
“The trade tensions are a major reason for the yuan to depreciate because it hurts the global economy – and China’s current account balance,” said Jimmy Zhu, chief strategist at Fullerton Markets. “On the other hand, the dollar is being propped up against other currencies when their central banks ease policies.”