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Chinese Yuan Weakens to 10-Year Low As Economy Holds Steady

November 12, 2018 at 19:04 by Andrew Moran

Various yuan banknotesThe Chinese yuan weakened to a 10-year low against its US counterpart as the national economy held steady in October. It is evident that President Donald Trump’s trade war against Beijing continues to have a dire toll on the world’s second-largest economy. With the trade spat expected to linger into 2019, analysts are warning that the worst is far from over for China.

According to new economic data from UBS Evidence Lab, property sales growth was flat, property investment growth was up, industrial production rebounded, retail sales improved from September, and manufacturers’ auto sales were soft. Meanwhile, exports grew 15%, while imports jumped by 21%.

With more analysts becoming bearish on the yuan, as well as the currency’s proxies, there are some experts who contend that the People’s Bank of China (PBOC) might intervene at anytime. Officials have already confirmed that they will not use the yuan as a bargaining chip in the trade war. However, last week, PBOC heads hinted tougher management of the currency by eliminating a phrase from an important monetary policy report that relates to market forces. This is the first time it has happened in five years.

The longer the trade war continues, the worse it will be for global supply chains and Chinese demand for products from neighboring markets, says Oxford Economics.

Louis Kuijs, head of Asia Economics at Oxford Economics, said in a report:

For most Asian economies, exports to meet Chinese domestic demand have risen much more rapidly than indirect exports via supply chains, with the former now exceeding the latter.

The significant amount of Asian exports used in China’s own economy means that in assessing the impact of a US-China trade war, we should expect the effect via China’s domestic demand to play a key role.

Other analysts are not optimistic about Beijing’s stimulus efforts. Citi wrote that the strengthening US dollar, pressures on global trade, and a tumbling Chinese economy pose risks to emerging markets.

The USD/CNY currency pair rose 0.1% to 6.9637, from an opening of 6.9569, at 18:07 GMT on Monday. The EUR/CNY cratered 0.74% to 7.8282, from an opening of 7.8867.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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