Regional markets sold off on MondayCredit:Reuters
A weaker Yuan could in theory enable China to offset the tariff increases threatened by US President Trump against the country and allow its exports to remain competitive.
"Though the PBoC said back in June that no one number for the CNY is more important than any other,7.00 had taken on symbolical significance as a ‘line in the sand’ above which the authorities wouldn’t allow the currency to trade,"National Australia Bank head of foreign exchange strategy Ray Attrill said.
"So in not forcefully resisting what looks like a market-driven move,it has instilled in markets a belief that the authorities are allowing the currency to be ‘weaponised’ in some form as a countermeasure to Trump’s latest tariff announcement."
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The yuan's sharp decline followed a tweet from Donald Trump on Thursday last week that said the United States would introduce 10 per cent tariffs on $US300 billion worth of Chinese imports entering the country from September 1,adding to existing 25 per cent tariffs on $US250 billion worth of Chinese imports already in place.
"China will struggle to respond in kind given that only $US50 billion worth of goods imports from the US have yet to be subject to tariffs,"said Julian Evans-Pritchard,senior China economist at Capital Economics,in a note released on Friday.
"The most powerful policy tool at officials'disposal is the exchange rate,as currency weakness would directly offset much of the impact from the tariffs."