Market news
06.08.2019, 14:32

Weaker CNY could prompt a broader currency war – Rabobank

Jane Foley, the senior FX strategist at Rabobank, notes that with the escalation in the trade war between the U.S. and China in the past few days, the question is whether recent events will trigger a full-blown currency war and how far the crossfire will extend.

  • “By setting the daily fix for USD/CNY a little lower than expected this morning, the PBoC has breathed a little calm into global markets. Anxiety levels, however, are running deep.  The decision by the US Administration to label China a “currency manipulator’ yesterday is a hugely charged political statement.
  • It is possible that Trump has a desire to be seen to be taking a firm stance against China for his domestic audience ahead of next year’s election.  It is also possible that China’s decision to allow USD/CNY to slide above the 7 level yesterday was a warning to the US, that the currency could be used as a weapon in the ongoing trade war between the two countries.
  • According to the US “in recent days, China has taken concrete steps to devalue its currency”. USD/CNY is trading over 2% higher than its level at the start of this month.   Arguably, however, the CNY was due a depreciation in reflection of the slowdown in domestic growth and the policy easing announced this year by the PBoC.
  • A significant and rapid move lower in the CNY could send shockwaves through the global economy. China is the world’s largest importer of commodities and a considerable consumer of goods produced in the Asian region. A weaker CNY could thus prompt a broader currency war.
  • Although the topic of whether the US Treasury would intervene in the FX market is topical, this would go against the grain of years of G7 accords which maintain that markets should set exchange rates.
  • While it is impossible to second guess Trump, US FX intervention is thus still unlikely.   That said, a currency war is a clear threat and the signals made by both the US and China over the next few days and weeks will be watched closely.”

© 2000-2024. All rights reserved.

This site is managed by Teletrade D.J. LLC 2351 LLC 2022 (Euro House, Richmond Hill Road, Kingstown, VC0100, St. Vincent and the Grenadines).

The information on this website is for informational purposes only and does not constitute any investment advice.

The company does not serve or provide services to customers who are residents of the US, Canada, Iran, The Democratic People's Republic of Korea, Yemen and FATF blacklisted countries.

AML Website Summary

Risk Disclosure

Making transactions on financial markets with marginal financial instruments opens up wide possibilities and allows investors who are willing to take risks to earn high profits, carrying a potentially high risk of losses at the same time. Therefore you should responsibly approach the issue of choosing the appropriate investment strategy, taking the available resources into account, before starting trading.

Privacy Policy

Use of the information: full or partial use of materials from this website must always be referenced to TeleTrade as the source of information. Use of the materials on the Internet must be accompanied by a hyperlink to teletrade.org. Automatic import of materials and information from this website is prohibited.

Please contact our PR department if you have any questions or need assistance at pr@teletrade.global.

Bank
transfers
Feedback
Live Chat E-mail
Up
Choose your language / location