Chinese Yuan dropped sharply in Asian session partly in response to trade war escalation with US. The PBoC set its daily reference rate at just a slightly weaker level than 6.9 for the first time since December. By USD/CNH (offshore Yuan) then surged to a new low at 7.111, break through the psychological level of 7 decisively. In the stock markets, Nikkei is currently down -2.30%. Hong Kong HSI down -2.89%. China Shanghai SSE down -0.81%. Singapore Strait Times down -1.83%.
Last week, Trump announced to impose 10% tariffs on USD 300B of effectively all untaxed Chinese imports, starting September 1. China responded with hard-line rhetorics. The developments suggested a return to ti-for-tax retaliations and suspension of trade talks.
Meanwhile, today’s free fall in Yuan argues firstly that the Chinese government is seeing no need to keep Yuan exchange rate stable. Further, it’s a sign that Beijing is weaponizing the Yuan as a tool to offset the impact of tariffs in trade war.
Technically, USD/CNH is now eyeing 61.8% projection of 6.2359 to 6.9804 from 6.6704 at 7.1305. We don’t expect a solid break there on first attempt. However, sustained trading would pave the way to 100% projection at 7.4149. That would further pressure Asian equities and spread to global markets.
