Authorities expected to shore up the currency if it breaks 6.9

The Chinese yuan dropped further on Tuesday, reaching lows not seen since July 2017, as capital flees the Chinese currency due to monetary policy and uncertainty on trade.

The yuan has dropped almost 6 percent since June 15, when US President Donald Trump first announced new tariffs on Chinese goods, leading to accusations by Trump himself that China is manipulating its currency to offset the effect of tariffs.

"It is very rich to see Trump anxious about the depreciation of the yuan when it is him who has caused it. It should be obvious that the fall of the yuan is market-driven, as the freely-traded offshore yuan is falling more than onshore trading," Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times on Tuesday.

The People's Bank of China, the country's central bank, set the official exchange rate on Tuesday morning at 6.7891, the lowest in more than a year and 0.44 percent lower than the previous rate set on Monday.

The rate drop drove markets even lower, as onshore trading stooped further to 6.8295 per dollar before changing hands at 6.81 during the afternoon trading session on Tuesday. The freely traded offshore yuan fell even lower to 6.8448, a level not seen since June 2017.

Zhou pointed out that China's foreign exchange reserves have been falling in recent months, not rising as would be expected if China was manipulating the currency to depreciate the yuan. This is a sign that China is actively trying to stabilize the currency.

In the view of Zhou, market pressures are likely to keep pushing the yuan lower in the following weeks.

"The US Federal Reserve last month raised interest rates, while China's central bank  has loosened its monetary policy, which has caused some amount of capital flight from China, driving down the yuan. The trade row with the US also will worsen China's commercial balance, which works against the yuan," he said.

"An even lower yuan will bring inflationary pressure on domestic prices and create conflict with our trade partners, so we expect China to take strong measures to prop up its currency if it breaks the 6.9 barrier," said Zhou.

(Source:Global Times)

Cover image: VCG