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Fears of a repeat of yuan declines in August 2015 and January 2016 will eat away at the market psyche, while badysts find it hard to explain the current depreciation of the Chinese currency.
An explanation behind the slide raises a new stock market concern about China: Beijing may deliberately allow the weakening of the yuan as a tool for its trade dispute with the United States
" It's very believable, "said Charlie Robertson, economist. If the People's Bank of China actually implemented this strategy, which allows it to control the value of the yuan through a currency exchange mechanism, it would open a new front in the country's relations with the United States:
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But what matters is not so much the size of the movement of a currency but its persistence and speed, and the yuan has been devalued in 11 trading days of the last 13.
Another big drop yesterday of 0.8% to less than 6.70 yuan for a dollar, for the first time since August, led the chairman of the People's Bank of China Yi Gang to make statements to calm the markets. The yuan has recovered its losses, but badysts believe that the decline in the currency will continue.
BNY Mellon's Simon Derrick described the June fall as "extraordinary", saying that it was the most pronounced monthly move in the history of the currency system. from China, which measures the yuan against a basket of currencies
Accompanying this decline is the collapse of Chinese stocks and contagion signals in Asian markets, while the economic data offered by Beijing have softened. [19659002] The temptation is to link the devaluation of the yuan to the escalating trade tension between the United States. and China. The possibility that the weakening of the yuan will become a commercial weapon of war "is now an added concern," said George Magnus, vice president of the Chinese Center of Oxford University. "Whether it's true or not, the weakness of the yuan is fueling this speculation."
If the decline of the yuan continues, President Trump will soon repeat his constant accusation that China devalues its currency to have a competitive trade advantage In April alone, he tweeted that China was, with Russia, "playing the game of devaluation of the exchange" while the United States continues to increase rates. "It's unacceptable!"
But there are reasons not to relate the fall of the yuan to the trade dispute. Other factors explain its decline. Credit restrictions are slowing the Chinese economy, while the People's Bank of China seems to have abandoned its strategy of imitating the Federal Reserve in terms of tighter monetary policy.
The dollar also appreciates the trading landscape. According to Andrew Soper, director of currency options trading at Credit Agricole, the yuan has lagged behind other currencies against the dollar, "but the pace and noise have accelerated, compared to Asian currencies, it was updated. "
Whatever the reason for the loss of value, the People's Bank of China learned the lesson of the depressions of the yuan in 2015 and 2016. At that time, the central bank lost the As UBS's Goeff Yu said, "They would not tolerate this kind of volatility, that's the scenario they'd like to avoid."
danger is most serious for the authorities who define the policies. The last thing China wants now is a new capital flight, "added Magnus, adding that the dollar / yuan exchange rate is" a key symbol of trust "and that the more it falls, the more the risk increases. " that the depreciation takes all its value and that the People's Bank of China has problems to contain it. "
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