China’s currency sank to a six-year low against the U.S. dollar on Thursday as investors weighed what a Donald Trump presidency could mean for trade between the world’s two largest economies.
On the campaign trail, Trump talked tough about China, accusing it of “raping” the U.S. through trade and manipulating its currency, the yuan.
“The underlying threat of protectionism from the new U.S. administration will weigh negatively on trade-focused currencies in Asia like the yuan,” said Stephen Innes, a senior trader at online broker Oanda.
One dollar now buys around 6.8 yuan, the weakest the Chinese currency has been since September 2010. It’s fallen around 4.5% against the dollar so far this year after dropping a similar amount in 2015.
On the face of it, the weakening yuan may seem to support Trump’s accusations that Beijing is manipulating the currency to make its exports cheaper and more competitive. But China has in fact been waging an expensive war to stop the yuan from falling too fast too quickly. It’s desperate to avoid a repeat of the sharp drops that panicked markets in August 2015 and January 2016.
China spends billions to support yuan
Beijing has burned through hundreds of billions of dollars since last year in efforts to prop up the yuan. Its foreign currency war chest, while still ample, has shrunk to its lowest level in five years.
A big factor in the yuan’s recent decline has been the strengthening dollar, bolstered by expectations of a rate hike by the U.S. Federal Reserve next month. But China has its own problems, too, including slowing growth, an overheating property market and huge sums of money pouring out of the country.
Chinese yuan hits 6-year low against the U.S. dollar after Trump’s victory
November 10, 2016 by Leave a Comment