- Yuan At 12 Year Lows
- Chinese Economy Recovery
- China-U.S Rising Tensions Over Beijing
The Chinese Yuan has capitulated to 12-year lows as the U.S. dollar continued to strength across the board. Dollar strength comes at the backdrop of soaring tensions between Washington and Beijing. Concerns over a potential global economic recession has also led to a strengthened dollar as a safe-haven, sending the USD/CNY high.
Chinese economy Bounce back
The offshore Yuan exchange rate has since hit its record lows amidst growing concerns about the Chinese economy, following the Covid-19 pandemic. However, a recent bounce back in economic activity has raised hopes that the worst might as well be behind and that the Yuan could strengthen going forward.
A clear indicator that the Chinese economy is on a recovery path is a series of positive economic releases in recent weeks. May Caixin Markit Services PMI affirm a bounce back to growth on printing a high mark of 55 against 44.4 printed in April. The Composite PMI for May, on the other hand, came in at 54.5 against 47.6 reported previously.
Economic releases indicate that manufacturing activity is slowly picking up after coming to a halt at the peak of the coronavirus crisis. However, it is the rising tensions between the U.S and China that raise serious concerns as to whether the economy will recover fully.
U.S China Tensions
A fragile trade deal is on the cusp of collapse in the wake of the Washington warning of a strong response, following Beijing’s push to impose a new security law on Hong Kong. News that Beijing is urging Chinese firms to ceases imports for U.S soybeans and Pork raises serious concerns as to whether the trade deal will hold.
While President Donald Trump has hinted at the possibility of letting the trade agreement in place to ease tensions, it leaves a lot to be desired. The souring tensions between the two economic powerhouses should continue to influence the USD/CNY exchange rate going forward.
While the dollar has lost some ground in recent days amidst riots in the U.S over police brutality, it could regain some of the losses, as a safe-haven, on rising tensions with Beijing.