China's yuan weakened to its lowest level in more than 10 years. What's next?
Finally! The Chinese yuan has crossed the Rubicon into the 7s. Most economists predicted this weeks ago. But China has managed to keep the currency from weakening as a response to higher tariffs. Now that Trump has announced tariffs on every China export to the U.S., the yuan is trading at 7.05 to the dollar,China bear and hedge fund manager Kyle Bass was downright celebratory on Twitter today.
Currency traders were also focused on Hong Kong politics today as demonstrations continue there against the government. China is blaming U.S. intelligence services for fomenting unrest, which began with an extradition law earlier this summer. For the market to push the China currency down to where it erases the export price increase caused by the existing 25% tariffs on $250 billion worth of goods, the yuan would have to hit nearly 8.75 to the dollar based on today's exchange rate. No one sees it going that high outside of uber-bears, a rare breed even in this climate.
"We think market sentiment in the current cycle is more resilient than it was in the previous cycle," says Bo Zhuang, chief China economist for TS Lombard. Another example of yuan weakness was 2018, when it fell around 10% against the dollar between April and October due to tariffs. The stock market did terrible that year.
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