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Will USD/CNY Break Through Red Line? Trade War Impacts Chinese Economic Growth

October 19, 2018 8:28 am | Modified October 19, 2018 9:41 am
CNY, Politics, USD | BY Ben Scott

Since June, the US Dollar to Chinese Yuan (USD/CNY) exchange rate has been climbing sharply, which is unsurprising given the amount of disruption trade tensions have created.

The Chinese Yuan to US Dollar (CNY/USD) exchange rate recently hit a 22-month low. The currency pair has fallen by around 10% since April. However, the Yuan is forecast to break through a key level against the Dollar later this year or next year, which could create additional selloffs. If the USD/CNY exchange rate reaches 7.00, the red line will be crossed.

Strategist Mark Chandler said:

‘Its a red line because it’s psychological and also because China previously seemed to defend it verbally.’

Trade Tensions Weigh on Chinese Economy and CNY Exchange Rate

Trade tensions have also had a negative impact on Chinese growth, with the third quarter registering 6.5%, the weakest number on record since early 2009 when the Global Financial Crisis was in full swing. Forecasts suggest further slowing could occur too, with a full-blown trade war looming on the horizon.

Industry expert Neil Wilson commented:

‘Growth of 6.5% rather than 6.6% is a pretty nice problem to have but the trade war with the US, higher debt levels and a depreciating currency remain a concern.’

Industrial production showed a slowdown and highlighted a weak point in the Chinese economy, coming in at 5.8% on the year in September. August had shown a slightly more positive 6.1%.

Economist Freya Beamish commented:

‘The slowdown makes sense in the context of the sharp downtrend in the manufacturing PMIs in recent months. The breakdowns available at this stage offer little sign of green shoots. In particular, cement production is falling again, though this could reflect environmental curbs, rather than suggesting that the construction sector is back in the doldrums, after its recent positive contribution.’

It’s expected further cooling lies ahead, with recent infrastructure spending improvements unlikely to impact Q4 growth. There’s also the potential for further adjustments to monetary policy to make it more accommodative.

Today’s US Dollar Exchange Rate Forecast

European markets have begun Friday rather subdued; later in Stateside trading the US Existing Home Sales stat for September will be out, followed by the Baker Hughes weekly rig count. Additionally, Federal Reserve representatives Raphael Bostic will be speaking about the Economic Outlook, while Robert Kaplan also speaks in New York.

The US Dollar to Chinese Yuan (USD/CNY) exchange rate is trading at levels of 6.9287, having hit highs of 6.9409 and lots of 6.9253 so far in today’s session.

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