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Home / Business / The Chinese Yuan has reached new lows as the trade war threatens market instability

The Chinese Yuan has reached new lows as the trade war threatens market instability



SHANGHAI (Reuters) – China's yuan slid to a new low on Friday and was at record high as a fierce trade chain between China and the USA threatened the second largest economy in the world even a rebound in equities brought a modicum of calm.

FILE PHOTO: Chinese 100 yuan banknotes are being seen on a counter at a commercial bank branch in Beijing, China, on March 30, 201
6. REUTERS / Kim Kyung-Hoon / File photo

Chinese equities also set Their biggest monthly slowdown since January 2016 highlighting investor concerns as Washington and Beijing showed no sign that they were withdrawing from their tariff.

The CSI300 index rose 1.15 percent at 02:30 GMT, while the Shanghai Composite Index gained 0.8 percent despite falling 8.8 percent and 9.1 percent over the month.

The yuan lost about 3.4 percent of its value against the dollar in June, the biggest drop since the market price was unified in 1994. On Friday at 02:30 GMT, it traded at 6.6368 per dollar ,

U.S. President Donald Trump has shaken the world trade order by trying to renegotiate the terms of some of the US trade relations, particularly with China.

The United States aims to enforce $ 34 billion worth of Chinese goods for tariffs in force on July 6, and threatens another $ 10 billion in similar tariffs.

A China Yuan Note can be seen in this photo May 31, 2017. REUTERS / Thomas White / Illustration

Investors fear a broad sell-off of stocks and the yuan could trigger a spike in capital outflows, causing the euro to continue The burdensome economy and more complicated policies will make as authorities set up a defense against the trade battle with the United States.

Chinese 10-year Treasury futures for September delivery, the most-traded contract, gained 0.24 percent.

"The central bank is expected to step up its efforts to calm investors and slow the devaluation of the yuan, which has led to risk aversion in regional markets, including a possible reintroduction of the countercyclical factor (CCF)" Gao Qi, FX strategist at Scotiabank in Singapore, wrote in a note on Friday.

He said that there would be "strong resistance" at 6.70 yuan a dollar.

A regional bank dealer in Shanghai who did not want to be nominated said that the central fix set by the central bank each morning was "filtered" to keep the yuan from falling.

"It's too early to say if the anti-cyclical factor has been revived – if market sentiment could recover by itself, there's no need to use the factor – the market needs some more time to digest "said the dealer.

In May 2017, People's Bank of China added a secret "anti-cyclical factor" to its formula for calculating the mean, which helped lower a floor below a falling yuan. At the beginning of this year, the X-factor was effectively reduced as the yuan recovered.

The trader said dollar demand was strong this week and could last until July 6, when US tariffs on Chinese goods should come into effect.

coverage by John Ruwitch, Winni Zhou, and Samuel Shen; Cultivation of Shri Navaratnam


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