May 26, 2019

China's yuan slumps to 2019 low as trade war escalates

15 May 2019, 09:30 | Hattie Nash

Asian markets tick up after Trump tweets but uncertainty remains

Global Markets Recover As Investors Become Optimistic Of A Deal

The S&P 500 rose from its worst loss in four months after President Donald Trump said negotiations will be "very successful" even as his administration prepped fresh tariffs on the remaining US$300 billion of imports from China.

"We're waiting to see if China retaliates to the latest round of USA tariffs ... and continue to favour the yen on a short-term basis and expect the market to remain focussed on the yuan", said Chris Turner, an ING currency strategist.

Several forex traders said there was no sign of large liquidity inflows to the market Monday. The yuan depreciated just as trade tension rose. That has increased fear in markets that any further escalation could seriously jeopardise the global economic recovery before numerous world's central banks have had a chance to normalise monetary policy.

The yuan fell 0.8% to end its onshore trading session at 6.8721 per dollar on Monday, its weakest such close since January 3.

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There has been speculation about whether and when the yuan could break the key 7 yuan per dollar level.

Bank of Indonesia has an interest rate decision on Thursday.

The U.S. dollar index that tracks the greenback against a basket of other currencies was flat at 97.317.

Earnings this week include Alibaba, Tencent, Cisco, Nvidia.Kansas City Fed President Esther George and Richmond Fed President Thomas Barkin make appearances.China industrial production and retail sales are slated for Wednesday, the same day as US retail sales and industrial production.Bank of Indonesia has an interest rate decision on Thursday.Australian unemployment is out on Thursday.

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"Depreciation would be good for foreign trade, but it could have an impact on the stability of market confidence", he said.

China's balancing act goes beyond maintaining market confidence. The hot topic of whether China will stop buying US Treasuries depends on whether the US escalates the trade war, but we believe China will reserve this option asthe last salvo. US equities rebounded Tuesday from their worst sell-off in four months, while the yen edged lower. This trend was said by currency market watchers as Beijing may be tolerating to prop up exports.

The Chinese yuan rebounded on Tuesday in Asia following reports that China's state-backed funds, also known as the "National Team,"injected cash into the market in an attempt to support local stocks and currency". As per analysts, the Yuan will not weaken by a large amount even in the future.

The share of investors who said they were long or hold more longer-dated Treasuries than their portfolio benchmarks, grew to 32 per cent on Monday, from 28 per cent a week earlier and matching the level seen two weeks ago, J.P. Morgan said.

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. This article is strictly for informational purposes only.

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