Chinese yuan defies Trump comments, continues slide

Shanghai: The Chinese currency continued its sharp decline on Friday despite US President Donald Trump’s bid to rein in the dollar, as analysts pointed out that a weaker yuan aids Beijing in its trade tussle with Washington. The yuan fell to 6.7943 per dollar by late morning on Friday, down 0.28 percent, according to Bloomberg data, and is at its lowest levels in a year following an accelerating slide in recent weeks as the trade conflict heated up.

Its decline provides “a significant offset to the loss in export competitiveness for Chinese exporters due to higher US tariffs”, Rajiv Biswas, chief Asia economist with IHS Markit, told AFP. “The (yuan’s) slide against the US dollar will substantially cushion the impact on Chinese exporters from the planned next round of US tariffs.”

The world’s two largest economies are locked in a trade confrontation with no end in sight after the United States early this month imposed 25 percent tariffs on approximately $34 billion of Chinese mechanical and technological products. That sparked a dollar-for-dollar response from Beijing.

The US has since threatened tariffs on another $200 billion in Chinese exports, prompting Beijing to vow retaliation.

In a television interview on Thursday, US network CNBC quoted Trump saying a strong dollar “puts us at a disadvantage” and adding that the Chinese yuan “has been dropping like a rock”.

Those and other Trump comments criticising Federal Reserve interest rate hikes caused the dollar to fall back in the US on Thursday.

But the yuan declined further Friday as the People’s Bank of China (PBOC), which sets the yuan’s daily trading band, weakened the rate by the widest amount in two years.

It set a central point of 6.7671 per dollar, nearly one percent lower than the previous day’s. The yuan is allowed to move as much as two percent on either side of that point.

The yuan has fallen nearly 10 percent since mid-April.

China has been cracking down on excessive debt in its financial system but policy-watchers now expect Beijing to shift toward looser monetary policy, and potentially stimulus, to shield its economy from the trade row.

Looser policy tends to pressure a country’s currency.

Analysts said China seemed content to let the yuan weaken — for now.

“The fixing reflects the PBOC’s higher tolerance for yuan weakness,” Ken Cheung, senior Asian foreign-exchange strategist at Mizuho Bank Ltd. in Hong Kong, told Bloomberg News.

“Such rapid and sharp depreciation could trigger capital outflow pressures and undermine financial stability. China may issue verbal support soon.”