(Bloomberg):- China’s offshore yuan tested the weakest level on record on speculation the government would be willing to permit a weaker currency in response to fresh punitive measures from the U.S.
The offshore rate dropped as much as 0.7% to 7.1965 per dollar on Wednesday, the lowest since Sept. 3, 2019, when it reached an all-time low. Losses have steepened in recent weeks as the Trump administration stepped up rhetoric against China’s Communist Party over its handling of the coronavirus -- and its intention to crackdown on dissent in Hong Kong.
The exchange rate has become a focus of the U.S.-China trade war, with President Donald Trump repeatedly accusing China of manipulating its currency. Chinese officials have said they favor a stable yuan, after a shock devaluation in 2015 that roiled global asset prices and undermined investor confidence in Chinese financial markets.
A weaker yuan makes Chinese goods cheaper abroad, giving it a competitive advantage that could help boost overseas demand. Though domestic activity in China is starting to recover from a broad shutdown earlier this year, the world’s largest trading nation continues to rely heavily on exports for growth.
“The PBOC will allow the yuan to continue weakening as U.S.-China trade tensions continue rising, as long as it is orderly,” said Qi Gao, a currency strategist at Scotiabank.