Chinese Yuan weakens to lowest level since January

The Chinese Yuan treaded against the greenback at the weakest level since January amid the ongoing trade frictions with the United States (US) and expectations on a weaker economic outlook. The currency also showed further weakening after a report from the US treasury department avoided calling China a currency manipulator.

At around 2pm, Singapore time, the Chinese Yuan was at 6.94 against the US dollar, edging closer to the psychological barrier price of 7 per dollar.

The Yuan has tumbled by more than 9% against the dollar in the past 6 months, making it one of Asia’s worst performers for this year as the country is made to deal with internal issues of a slackened economic growth and rising debt levels, while fielding off trade war tariff attacks from the US.

On Wednesday, US Treasury Steven Mnuchin issued a report calling Beijing “not a currency manipulator,” but proceeded to raise concerns on China’s exchange rate practices and the Chinese Yuan’s recent fall.

In the report released to the US Congress, Mr Mnuchin flagged on China’s “lack of currency transparency” and the currency’s recent weakness, which poses major challenges to “achieving (a) fairer and more balanced trade”. Washington has long argued that China keeps its currency artificially low to make its exports competitive.

Following the US report’s comments, analysts are not expecting China to aggressively resist Yuan depreciation for fears of being called a currency manipulator. Prior to the report, some global banks such as JPMorgan Chase and Bank of America Merrill Lynch have already lowered their Yuan forecasts, predicting it to hit 7 against the greenback in six months.

China has certainly been seen defending its currency fall through the changes seen in their reserves and via its fixing trend, said IG market strategist Pan Jingyi. With a lack of a concrete improvement in US-China relations, it is likely that the Yuan will stay persistently weak, Ms Pan noted.

Ms Pan thinks the Chinese government is likely to plan on other fiscal and monetary policies should the 7 figure get challenged.

Stephen Innes, head of trading for Asia Pacific, Oanda Corp said the Yuan is likely to break 7 per dollar and China is unlikely to put up any defence, as the slowing economy does not support Yuan strength.