PBoC said the currency’s slump was “due to the effects of unilateralist and trade-protectionist measures and the expectations for tariffs against China,” the People’s Bank of China said in a statement.
Currency weakness is a textbook response to tariffs being imposed on a country’s exports but do not expect a repeat of Monday’s large one-day depreciation because devaluation will hurt both countries as imports becomes more expensive for chinese companies.
Monday’s move should be seen as a warning shot , its more likely the PBoC will be to allow a gradual (2018-style) depreciation in response to the heightened tariff threat given that global trade and manufacturing are already considerably weaker than a year ago.
The other smaller Asian currencies will also weaken in the wake of the yuan . The weakening of the yuan will be also post as a tailwind for commodity prices Historically, turning points in the CNY/USD exchange rate have also coincided with turning points in commodity prices. This blog expect commodity prices to be soft going forward to the end of the year.
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