RMB hits fresh 11-year low as trade war intensifies

August 26, 2019 14:54
China's currency has fallen to its weakest level since February 2008 amid growing concerns over the Sino-US trade war. Photo: Bloomberg

China's currency, the renminbi, hit a fresh 11-year low against the US dollar on Monday amid growing worries over the escalating Sino-US trade war and its potential fallout on global growth.

The onshore yuan fell 0.6 percent in early trade to 7.15 per dollar, its weakest since February 2008 and marking its second biggest one-day drop of the month, Reuters reports.

The offshore yuan fell to a record low of 7.1850, before regaining some ground to around 7.1595.

Chinese authorities have allowed the tightly-managed currency to fall some 3.6 percent so far this month as trade tensions between Beijing and Washington worsened, sparking fears of a global currency war.

The renminbi was trading around 7.1419 as of 0330 GMT.

On Friday, US President Donald Trump announced an additional duty on some US$550 billion of targeted Chinese goods, hours after China unveiled retaliatory tariffs on US$75 billion worth of American goods.

“This tit-for-tat escalation shows how unlikely a trade deal and de-escalation have become,” Louis Kuijs, of Oxford Economics, wrote in a note late on Sunday.

“The impact of the new tariffs on China’s economic growth will be sizeable,” he said.

Oxford now expects China’s economic growth could fall significantly below 6 percent next year, even assuming more policy support measures.

The People's Bank of China (PBoC), the nation's central bank, had been seen trying to stabilize the yuan in recent weeks after allowing a sudden slide in its value in early August following new US tariff threats. On Friday, traders thought it was signaling a floor at the 7.1 level.

But Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong, expects further weakness in the yuan for the rest of this year following the latest dramatic escalation.

“The PBOC has not yet signaled its bottom line for the yuan,” Cheung said.

With the economic outlook souring rapidly, analysts expect more growth measures from Beijing in coming weeks and months.

On Monday, the PBoC injected 150 billion yuan worth of funds into the financial system via its medium-term lending facility. It kept the interest rate on the instrument unchanged at 3.3 percent.

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