Mon, July 22, 2024

Chinese Yuan still low, while U.S. dollar soared on Monday

Asia's vulnerabilities have resulted in the yuan's volatility

The Chinese Yuan was flat at 7.1380 on Monday. However, it collapsed to a six-week low of 7.1555 against the dollar in the offshore market during the last session. If the Yuan declines again, the next levels to watch would be early-September low of 7.1975 or the mid-March low of 7.1651.

Investors’ fears that last year’s U.S.-China dispute will be re-ignited over the coronavirus pandemic caused the Yuan’s fall. U.S. President Donald Trump, as well as Secretary of State Mike Pompeo blamed China for the pandemic, as many believe the new coronavirus originated from the central Chinese city of Wuhan.

Pompeo stated on Sunday that there was a significant amount of evidence about the virus emerging from a Wuhan’s laboratory. Pompeo did not provide evidence and he didn’t dispute a U.S. intelligence conclusion that the coronavirus was not human-made. However, one can read the comments as Washington’s pressure on China as U.S. deaths and economic damage increase.

Analysts are speculating if the United States plans to attack China again with more trade tariffs or by canceling the payments on the U.S. Treasurys that China owns. Still, they all agree that the dollar/yuan cross would see more volatility.

Lee Hardman, a forex strategist at MUFG, stated that a re-escalation in U.S.-China trade tensions has the potential to end to the stability in USD/CNY.

What about other major currencies?

The U.S. dollar skyrocketed against the most major currencies on Monday. The Japanese yen, the ultimate safe-haven, was the only one that rose against the greenback, last trading up by 0.2% at 106.71.

The dollar rose against Scandinavian currencies as well, which are very vulnerable to global trade risks. The Swedish crown declined by 0.6% at 9.8995 versus the dollar, while the Norwegian crown dropped by 0.8% at 10.3975.

The European currencies also lowered. The euro fell by 0.4% at $1.0932, and Sterling slid by 0.4% to $1.2442.

Simon Harvey, the currency analyst at broker Monex Europe, noted that this morning’s session is being dominated by risk-averse trading as investors fear the negative consequences to global growth from another escalation in U.S.-China tensions.

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