FOREX-Yuan slides to 11-year low as trade war rattles investor confidence

Published 26/08/2019, 10:08
© Reuters.  FOREX-Yuan slides to 11-year low as trade war rattles investor confidence
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* Yuan slides to record low in offshore markets

* Yen hits new 7-month high on risk aversion

* Trump says China wants to negotiate, mkts recover

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Tommy Wilkes

LONDON, Aug 26 (Reuters) - China's yuan fell to an 11-year

low in the onshore market and a record low offshore on Monday

after the latest escalation in the U.S.-China trade war rattled

investor confidence.

President Donald Trump announced an additional 5% duty on

$550 billion in targeted Chinese goods on Friday, hours after

Beijing unveiled retaliatory tariffs on $75 billion worth of

U.S. products, sending stocks into a tailspin and investors

rushing for the safety of bond markets. At the G7 meeting in France over the weekend, Trump caused

some confusion by indicating he may have had second thoughts on

the tariffs.

On Monday he said China had contacted U.S. trade officials

to say they wanted to return to the negotiating table - those

comments helped the yuan off its lows. In China's onshore market, the yuan CNY=CFXS fell to

7.1500 per dollar, the lowest since February 2008.

In the offshore market, the yuan CNH=EBS slid to as low as

7.187 yuan, the weakest since international trading in the

currency began in 2010, before recovering to 7.1624 yuan - down

0.4% on the day - after Trump's upbeat comments on a trade deal.

In a sign that some calm had returned to markets, the

Japanese yen - which investors regard as a safe-haven - fell

0.4% to 105.76 JPY=EBS , having earlier hit a new seven-month

high of 104.46 earlier on Monday.

Commerzbank (DE:CBKG) analysts said "market sentiment has been

undoubtedly hit hard as there is an even lower chance of a trade

truce in the foreseeable future."

They said China could let the yuan "depreciate further to

ease the tariff pains, and somehow weaponize the currency to

anger Trump." Although they added that China would be reluctant

to allow any uncontrollable currency depreciation given it would

spur capital outflows and a massive hit to investors confidence.

Elsewhere, the dollar rebounded and was last up 0.3% against

a basket of currencies .DXY .

Versus the euro it rose 0.2% to $1.1115.

Writing before Trump's comments helped the dollar to

rebound, Marshall Gittler, a strategist at ACLS Global, noted

that the greenback was not behaving as a safe-haven currency.

"Today's move suggests that the market is beginning to

wonder if Trump isn't shooting himself and the US economy in the

foot with his endless trade war," he wrote.

The Turkish lira weakened around 1% to more than 5.8 against

the dollar on Monday after briefly plunging to 6.47 in what

market watchers described as a "flash crash" as Japanese

investors cut risk assets. The Australian dollar AUD=D3 , a liquid proxy for global

risk sentiment, earlier fell to $0.6690, within a whisker of a

recent decade-low of $0.66775, before recovering to $0.6750.

The New Zealand dollar NZD=D3 slipped 0.5% to $0.6342

overnight, a level not seen since 2015.

Sterling fell 0.3% to $1.2245 GBP=D3 , its moves driven

mostly by the dollar as investors waited for the next

developments in Britain's bid to get the European Union to

renegotiate its Brexit withdrawal agreement.

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