Home Forex News USD/CNY Rallies as CNY Reference Rate Drops to 12-year Lows

USD/CNY Rallies as CNY Reference Rate Drops to 12-year Lows

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  • S-China Tensions
  • China Controversial Security Law
  • Chinese e-Yuan

Beijing set the daily Yuan reference rate at the lowest level since 2008, in response to a strengthening U.S Dollar. The dollar has been on an impressive run in recent months as investors flock to safe-haven assets amidst escalating tensions between the two economic powerhouses.

CNY Reference Rate

The People’s Bank of China set the Yuan Dollar rate at 7.1209 after the rate hit a seven-month low last week. The Yuan has continued to weaken against dollar in the wake of COVID-19 pandemic, bringing the second-largest economy to a halt in March.

China is struggling with weak economic growth as the pandemic continues to affect key sectors of the economy. Shutdowns around the world have brought the world’s largest industrial economy to a standstill, leading to the Yuan’s weakness.

A strengthened Dollar amidst a looming economic crisis as well as geopolitical tension has all but continued to pile pressure on the Chinese Yuan. In early Monday trading session, the USD/CNY pair rose 0.16% to 7.1384 as the dollar continued to strengthen across the board.

U.S-China Tensions

The dollar looks set to continue strengthening, conversely sending the USD/CNY exchange rate higher as tensions between the U.S and China continue to edge lower. Beijing’s move to tighten its grip over Hong Kong with the passing of a new security law threatens a showdown between Washington and Beijing.

The new security law comes barely weeks after the U.S took China to task over the coronavirus pandemic that continues to take a toll on the world economy. Reports that the U.S is trying to cripple Chinese company’s access to U.S markets as well technology has all but continued to hasten tensions between the two countries.

Concerned by U.S dominance with U.S Dollar, China has reportedly released e-Yuan a cryptocurrency, it hopes will address its debt level and counter Bitcoin dominance.

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