Yuan Weakens On Trade Tensions With US

Yuan Weakens On Trade Tensions With US
May 9, 2019

 

The Chinese yuan remains weak against most of the G10 currencies including the greenback as world markets are still tumbling from the upcoming US duty increases on billions worth goods from China. Beijing has vowed retaliation, despite allegedly nearing a new trade deal. Investors are also carefully working through and studying the latest trade data that missed estimates and disappointed investors. In the last 24 hours, the USD/CNY currency pair has rallied to 6.7829, after opening at 6.8296.

 

Trump’s threat, weak economic data drive the yuan lower

President Donald Trump stunned global markets at the end of last week when he tweeted that import duties on $200 billion worth of Chinese products would be increased from 10% to 25%. Equities crashed across the world, sinking stock indices in red paint. Traders are worried that global economic growth will be hampered by another round of duty hikes. Furthermore, investors and speculators believe that import duties will only delay or collapse the ongoing trade discussions between the US and China. Notably, the Chinese delegation will meet their US counterparts in Washington this week to resolve the outstanding issues.

Trump confirmed that Vice Premier Liu He will be a part of the delegation that arrives in Washington. The US President has claimed that the vice premier will meet him at the White House “to make a deal,” but Beijing has stated that it is “completely ready for an escalated trade conflict.” China has also warned that it could enforce protective measures against imports from the USA.

Yesterday, Trump tweeted as follows: “The reason for the China pullback & attempted renegotiation of the Trade Deal is the sincere HOPE that they will be able to “negotiate” with Joe Biden or one of the very weak Democrats, and thereby continue to rip-off the United States (($500 Billion a year)) for years to come…. Guess what, that’s not going to happen! China has just informed us that they (Vice-Premier) are now coming to the US to make a deal. We’ll see, but I am very happy with over $100 Billion a year in Tariffs filling US coffers…great for the U.S., not good for China!”

There are reports that US authorities are upset with China failing to deliver on trade obligations, but the administration shied away from mentioning what precisely Beijing neglected to do. Regarding economic data, Chinese exports decreased by 2.7% in April to $193.49 billion, compared with a 14.2% increase in March. The figures contradict economists forecast for a 2.3% increase in exports. Chinese imports grew 4% in April to $179.65 billion, compared with a 7.6% contraction in the previous month. Economists had anticipated a 7.6% contraction in imports.

Overall, China’s trade surplus dropped to $13.84 billion in April, from $26.21 billion in the similar period of 2018, according to the General Administration of Customs. In an attempt to boost the economy, the People’s Bank of China (PBOC) has again slashed reserve requirement ratios (RRRs). PBOC intends to add liquidity of about $41 billion for small-medium-sized banks, encouraging firms to borrow more. This step reflects the lowest amount of capital to be held as reserves by financial institutions since January 2018.

The economic data and Trump’s threat to hike import duty is expected to keep the yuan bearish for the rest of the week.

cny - technical analysis - 9th May 2019

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Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


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