- Chinese Yuan At 12 Year’s Low
- Concerns of Rising U.S-China Tension
- PBOC Stimulus Package
A strengthened dollar amidst rising tension between Washington and Beijing sent USD/CNY exchange rate tumbling in the Wednesday trading session. The pair hit record lows of 7.1805 per dollar as Hong Kong emerged as a flashpoint of already strained relations between the two superpowers.
Chines Yuan Depreciation
The dollar continues to hold its ground against the Chinese Yuan as traders continue to bet on it, given its safe-haven status. Rising tensions between the two countries has been counteractive in the wake of confidence that the two were slowly recovering following the COVID-19 pandemic.
However, as it stands, rising tensions could continue to take a toll on the two economies that are struggling with the aftermath of the COVID-19 pandemic. China has had to set the reference rate at 12-year lows as it continues to struggle with an economic slowdown that shows no signs of bouncing back.
People’s Bank of China has already fixed the exchange rate at 7.1277, the lowest level since the 2009 financial crisis. Setting the rate at record lows is part of the PBOC push to cushion the economy in response to possible punitive measures from the U.S.
President Donald Trump has warmed at the possibility of hitting Beijing, with strong measures on it going through with a controversial security law that has triggered massive unrest and protests in Hong Kong. Any punitive measures by Washington would likely result in a tit for tat response for Beijing, something that continues to fuel fear in the currency market.
PBOC Stimulus Pact
In addition, the PBOC has had to inject more liquidity into the already strained economy. The central bank has pumped in 240 billion Yuan or $33.49 billion as part of a seven day reverse repurchase agreement pegged at 2.20%. The additional liquidity is part of the PBOC efforts of keeping liquidity levels at desirable levels, to counter the fallout of the COVID-19 pandemic and rising tensions with the U.S.