The trade war between China and the United States has had far-reaching consequences on businesses that operate between the two countries. Amid fresh tension building between the two nations, the money markets have reacted negatively.
China and the United States have been engaged in a trade war that has seen each country impose tariffs and other harsh conditions on the other’s products. On Friday, the Chinese government promised to fight back after American President Donald Trump decided to place 10% tariffs on the remaining $300 billion in Chinese imports. The move by Trump came after the countries were in a truce that lasted a month before the new tariffs broke it.
As markets opened on Monday, the Chinese Yuan has tumbled by over 1% to reach 11-year lows. The vow by Beijing to fight back has triggered fears that the trade war might escalate again, and this has caused a sell-off in other currencies in the region. Investors placed their money in “safe haven” assets as they try to avoid the effects of a complete fallout.
For the first time since May 2008, the yuan traded above 7 per dollar. The 7 dollar barrier the yuan broke through is regarded as a significant support level by some market players. For offshore trading, the Chinese currency traded a 7.1097 per dollar while it traded at 7.0424 to the dollar onshore.
Masashi Hashimoto, a Senior Currency Analyst at MUFG Bank, expressed that this might be the most significant moment for the yuan this year. The impact of the US-China trade (war) is turning out to be very big. He added that looking at the midpoint, the People’s Bank Of China (PBOC) is trying to stem the yuan’s fall. The PBOC doesn’t look like it is trying to use a weaker yuan to counter U.S trade pressure. The yuan’s fall seems to be stemming from panicky selling, Hashimoto concluded.
The fall of the yuan resulted in other currencies across the region also tumbling with it. The Korean won fell by 1% and reached a three year low of 1,218.3 per dollar. The Australian dollar tumbled by 0.5% to $0.6770 and reached a 7-month low of 0.6748. The Australian dollar almost reached its flash crash low of $0.6715, which it suffered in January. The new Taiwan dollar fell by over 0.5% and reached a two month low of 31.61 against the dollar.
The U.S dollar itself stumbled against traditional safe-haven currencies. Against the yen, the dollar fell to a low of 105.80. This is the lowest the U.S dollar has been against the yen since January’s flash crash which saw the dollar stand at 106.07. The euro gained 0.15% to trade at $1.1122 against the dollar and extending its recovery from a two year low of $1.1027 it reached on Thursday.