Markets

Where is the Chinese yuan going?

AB Visual Arts / Shutterstock
AB Visual Arts / Shutterstock

The Chinese yuan has been weakening-triggering fears of a sharp devaluation that could roil global markets. Should markets be worried? We see scope for the yuan to moderately depreciate through the rest of the year in response to slower growth, financial deleveraging and escalating trade tensions. The Chinese authorities are likely to rely on monetary and fiscal policy tools, rather than the currency, to manage any growth slowdown in the second half, in our view.

The yuan has slid 4% so far this year, with the fall accelerating since mid-June when U.S. President Donald Trump announced a 25% tariff on $50 billion of Chinese imports. See the blue line in the chart above. Yet we do not see China resorting to a 2015-style devaluation to cushion the blow (The yuan fell 2.75% over two days in August that year). Back then, a lack of market confidence in China's policy framework contributed to capital flight (see the green bars), spooking global markets. Today, China has stricter capital controls in place-and improved coordination between policymakers. We believe this should give the government confidence to allow the yuan to gradually slide lower. [storytout]Read more in our Weekly commentary . [/storytout]

Slow and steady

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Bottom line

BlackRock geopolitical risk dashboard Richard Turnill is BlackRock's global chief investment strategist. He is a regular contributor to The Blog

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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