06/28/2018, 14.03
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Record devaluation of the yuan ahead of tariff war

For the seventh day in a row, China’s central bank lowers its currency’s value, setting the offshore yuan at 6.6300 per US dollar. Beijing is trying to position itself for the coming economic and trade battles with the US. A weaker yuan helps export by making prices more competitive in foreign markets.

Beijing (AsiaNews/Agencies) – The offshore yuan traded at a fresh six-month low of 6.6300 per US dollar this morning, down 0.2 per cent from Wednesday and 3.8 per cent from 13 June.

The People's Bank of China (PBOC), China’s central bank, set the yuan’s midpoint at 6.5960 per dollar on Thursday morning, down 0.6 per cent or 391 points from Wednesday’s 6.5569, which itself was 0.6 per cent lower than Tuesday.

For the past week, the central bank lowered the midpoint by 2.7 per cent, down 3.1 per cent from 14 June.

The yuan’s price depends on a daily fixing rate set by the PBOC every morning, around which it can only trade in a range of 2 per cent either side. The fixing rate is therefore seen by the market as a signal of the central bank’s strategy.

The onshore yuan, traded in Shanghai, also hit a six-month low of 6.6247 against the greenback on Thursday morning, down 0.4 per cent from the previous close.

This morning’s decline comes after the People’s Bank of China lowered the currency’s daily fixing rate for a seventh consecutive day, a strong signal that the central bank wants to see a weaker yuan as it gears up for a possible all-out trade war with the US.

For Lukman Otunuga, a research analyst at ForexTime (FXTM), the PBOC’s tactic of lowering the official fixing of the yuan is part of an effort to cushion the effects of trade tariffs imposed by the United States.

A weaker yuan helps exporters by making their prices more competitive overseas.

“The yuan has weakened to its lowest level this year against the US dollar with prices punching above the 6.6000 level. It is becoming increasingly clear that global trade developments have weighed heavily on the yuan,” Otunuga said.

Nevertheless, for Cheng Shi, chief economist of ICBC International, the central bank should be alert to the yuan’s depreciation.

In early 2015, the currency’s decline triggered a flood of capital outflows that persisted for around two years.

Policymakers should “closely follow changes in expectations of the yuan’s movement,” he said. “It is crucial to prevent the re-appearance of the demon of depreciation”.

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