TALKING POINTS – CHINESE YUAN, US DOLLAR, TRADE WAR, FED, AUSSIE DOLLAR
- The Chinese currency is on the ropes against the US Dollar[1]
- It is hardly alone there. US monetary policy and economic outperformance have seen to that
- Still, a cut in Chinese buying power will have baleful effects elsewhere
Fourth-quarter technical and fundamental forecasts from the DailyFX analysts are out now[2]!
China’s currency has fallen sharply and consistently against the US Dollar this year, reaching lows not seen for a decade last month. Indeed the greenback is once again flirting with the psychologically crucial CNY7.00 level, raising much market speculation as to whether Beijing would allow its currency to weaken beyond that point.
So why exactly is the currency so feeble, and what might a prolonged period on the ropes mean for foreign exchange markets more broadly?
Well, in examining the Yuan’s long fall against the Dollar it is important to note that this could very well be as much a tale of the latter’s strength as the former’s weakness. Buoyed up on the tide of rising US interest rates[3], plenty of currencies are well down for the year against the US unit. Emerging markets have been especially hard hit. For all its power, China remains just such a market. It would be odd to see the Yuan standing too far out of line with the others here.
After all, the US economy continues to power ahead,[4] even as China’s appears to be decelerating[5].
A Different Sort Of Devaluation
In short, a weaker Yuan looks eminently justifiable in economic terms. This is certainly
