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Chinese Yuan weakens against the US Dollar

In Market Analysis

Over the last few decades Chinese growth figures have been the envy of central banks around the globe. The back-to-back years of double digit GDP have now slowed to “only” around 7%.

Recent macro data from China has disappointed markets, with the indicators pointing to a further slowdown in economic growth. The expansion has been coupled with inflation, however data released in January reported a 5 year low. On the 4 February the PBOC attempted to stave off a further slowdown by cutting the reserve ratio requirement. The concerns of lower inflation, demand and growth indicate to a slump in the economy.

Commodities

The growth in China has fuelled the mining boom in Australia, and pushed prices higher across base and precious metals. The demand for commodities from China during the economic slowdown has been a beacon of global hope. As the world’s exporter imported unprecedented levels of raw materials to fuel growth, global growth was buoyed.  With a slowdown of growth in China, this level of demand could have peaked, with the knock on effects felt in key trading partners such as Australia.

China’s Yuan

In Asian trading overnight the Yuan fell to its weakest level against the greenback in more than 2 years. Traders have been selling the pegged currency as the prospect of an slowdown beckons.

The Yuan has been pegged by the PBOC to the US dollar since 1994, which has come under criticism as it is argued that the currency is artificially undervalued to provide China with a competitive advantage when exporting. The government enforced peg, stops the exchange rate from floating freely, which requires the PBOC to effectively print Yuan to maintain the trade surplus. In January China recorded a record trade surplus as oil prices have fallen and weak domestic demanded.