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The Fall of the Yuan Will Cause Changes in The US Dollar Currency
The yuan’s first drop in ten years below 7 per dollar caused a real tsunami of risk aversion in global financial markets on Monday, August 5. |
According to FxEmpire analyst Stephen Innes, the weakening of the Chinese currency, or rather, the fear of worsening the trade war between Beijing and Washington, was hit by American assets. The S&P 500 index fell 3%, the Dow Jones fell almost 800 points. Regarding exchange rates, investors rushed to the "safe haven", including the dollar and the yen.
On Tuesday, the People’s Bank of China issued a report stating that it was stabilizing the renminbi. This news caused a wave of positive in the markets and indexes almost won back the losses incurred the day before. However, the danger of further weakening of the Chinese currency remains.
«The strength of the yuan will be determined by the domestic economy. If it is possible to stabilize growth in the third quarter, then the yuan may stop at 7.2–7.3 per dollar», said Zhang Yi, chief economist at Beijing Zhonghai Shengrong Capital Management.
According to Nasdaq, if Washington introduces additional tariffs on Chinese imports, the Chinese currency may still become cheaper. So, if the yuan drops by 8%, American companies will have to pay only 2% more for imported goods, despite 10% tariffs.
However, such a development of events will inevitably affect the world market, including exchange rates. The dollar, like dollar assets, will rise in price. The Australian dollar, which many call the "mirror" of the Chinese currency, on the contrary, will weaken along with it.
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