Trump Tweets Shake Chinese Yuan as Markets Brace for a Tough Week

Alan Penny

6 May 2019

2 min read

The Offshore Chinese Yuan slipped to 6.82 against the US Dollar on Monday. This marks a significant drop from the highs of last week where the currency traded at around 6.72 per dollar. The movement comes as Chinese markets also opened with a slump on Monday morning amid a busy weekend of strong tweets from the US president.

Yuan Headed Lower Still?

With levies of up to 50% across two-stages proposed on Sunday by Trump, the CNY is set for its biggest fall against the dollar in 36-months. This has led several analysts to predict a fall to 7.00 CNY per US Dollar in the very near future. This will all depend on the outcome of talks, which had seemed very likely until just 24-hours ago.

The US had initially agreed to hold off on increasing tariffs, which had been set at 10% on some products, so that delegations from both countries could sit down and make a deal. This plan has now been thrown into some uncertainty. The Chinese VP, Liu He, had been due to bring a large Chinese contingent for talks this Wednesday. The hope of these talks would be to avert such tariffs.

Posturing from the US

The general consensus, as the Chinese central bank also lowered its official midpoint for the Yuan, to 6.7334 on Monday, its lowest level since February, is that the US may be using the threat of increased tariffs as a negotiation tactic. This is the hope at least, with the markets relying on a positive dialogue to happen this week, prior to the increased tariffs. These would come into action on $200 billion worth of Chinese goods from Friday if the talks end poorly, or do not happen at all.

This type of posturing has long been the hallmark of the current US leader, and nobody would be surprised if talks were to take place this week after all, and in the process be hailed a great success. This is the kind of rhetoric which traders must judge. An unenviable task at best, with much sentiment divided, and the markets showing the results.

USD/CNY Daily Chart - May 6th

USD/CNY Daily Chart – May 6th

A Strong Potential Impact

Reverberations are being felt around the economy, with the Dow futures also taking a plunge. They fell more than 450 points early on Monday. This may be partly in response to very poor Asian trading on Monday which saw Chinese markets fall sharply. The Shanghai Composite Index was down more than 5%.

It is very clear that the last 48-hours of uncertainty have transmitted a fearful sentiment to the markets. This all comes amid a very busy week for the greenback. The GBP/USD traded above the 200-day SMA, but did decline during the Asian session. Tomorrow will mark another big day for the cable, with a final round of negotiations between the British government and Labour Party. Positive news from these talks is expected to boost the pair, and vice versa.

Written By
Alan Penny

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