SHANGHAI (AFP) – China’s currency slid on Monday to its weakest point in more than 11 years as concerns over the US trade war and the potential for global recession weighed on markets.
The onshore yuan was around 7.1425 to the US dollar in late morning Asian trading, its weakest point since early 2008, but slightly off lows reached earlier in the day.
Global economic tensions have intensified in recent days with the Washington and Beijing raising tariffs on each other’s imports, President Donald Trump calling on US businesses to leave China, and the fracas fuelling warnings of a worldwide downturn.
The yuan is not freely convertible and the Chinese government limits its movement against the dollar to a two percent range on either side of a figure that the central bank sets each day to reflect market trends and control volatility.
The People’s Bank of China has set that rate steadily weaker in recent weeks and on Monday put it at 7.057 to the dollar.
Allowing the yuan to depreciate makes Chinese exports cheaper, and offsetting some of the burden of punitive US tariffs.
“The gloves are coming off on both sides and as such yuan depreciation is an obvious cushion against US tariffs,” Mitul Kotecha, a senior emerging markets economist at Toronto-Dominion Bank told Bloomberg news.
“As long as China can ensure that yuan weakness is well controlled, i.e. it does not provoke strong outflows, expect to see further depreciation in the currency.”