- China Security law
- Coronavirus Concerns
- Economic Recovery Disruption
USD/CNY exchange rate remains at 12-year highs on the Yuan weakening against the U.S dollar in the aftermath of COVID-19 fallout. The Yuan has also come under pressure in recent weeks, amidst escalating tensions between Beijing and Washington, over a new security law that has triggered widespread protests in Hong Kong.
China Security law
Tensions between the two superpowers could escalate in the coming weeks, a move that could see the Yuan weaken further against the dollar. The greenback tends to strengthen in times of crisis as traders rush to a safe-haven to protect their portfolios.
The U.S Senate passing new legislation that promises to strengthen the U.S government’s ability to sanctions persons violating its Interests in Hong Kong is the latest development likely to influence the USD/CNY exchange rate going forward.
The new law gives the U.S government powers to sanctions any person deemed to be violating China’s commitments to Hong Kong. The Bill is part of the U.S push to curtail Beijing from imposing new security laws over Hong Kong.
The security has been the subject of widespread riots in recent weeks on concerns it will end up suppressing opposition activity against China in the City. With the new security law poised to pass by June 30, tensions between the U.S and China could escalate, especially on President Donald Trump’s warning of a strong response.
Escalating tensions would go a long way in benefiting the U.S dollar as a safe haven, a development that should see the exchange rate edge higher than current 12-year highs. In addition, the threat posed by a second wave of coronavirus infections should also continue to influence the USD/CNY exchange rate going forward.
China has been forced to close down some parts of Beijing to escalate new cases in the financial hub. The U.S, on its part, is also struggling with a second wave with States such as Texas, reporting record levels of infections that have brought the healthcare sector to a standstill in the state.
The dollar is likely to strengthen should coronavirus continue to arouse concerns about global economic recovery. Likewise, the Yuan should remain under pressure should the pandemic continue to take a toll on the industrial-dependent economy.
Looking ahead, U.S Core PCE Price Index set for release in the U.S session should influence traders’ sentiments on the greenback, conversely affect the USD/CNY exchange rate.