Offshore Yuan Falls to New Record Low Ahead of U.S. Tariffs; Gold Surges Again

China’s offshore yuan exchange rate plunged to new record lows on Monday, extending last week’s collapse and fueling fresh fears of capital flight from East Asian markets. Chaos in the currency markets is tracking closely with the threat of an all-out trade war between the United States and China.

Yuan Extends Slide

China’s yuan renminbi fell to a session low of 7.1925 U.S. on Monday, testing the lower range of the central bank’s currency peg. The sharp drop happened in the offshore market, where the yuan is allowed to trade more freely. Within mainland China, the yuan’s movements are tightly controlled by the People’s Bank of China.

The offshore yuan rate was last seen trading at 7.1772 U.S., according to MarketWatch. The yuan has lost roughly 4% of its value over the past month.

Yuan extends slide against the U.S. dollar, with the USD/CNY exchange rate approaching 7.2. | Source: MarketWatch.

The yuan fell to fresh 11-year lows against the dollar on Friday, dragging down regional currencies along with it. As The South China Morning Post (SCMP) reported, reported, the combination of a weaker yuan and central-bank interest rate cuts could accelerate capital flight from Asia this year.

U.S.-China Trade War Approaches Crisis Levels

SCMP also reported Friday that China appears to have given up on salvaging a trade agreement with the United States after Beijing announced new duties on $75 billion worth of American goods. President Trump didn’t take the measures lightly; he not only vowed to respond with new measures, but urged American corporations to stop doing business in China.

Trump’s comments, which were delivered through a series of tweets, triggered a severe slide in U.S. stock prices. The Dow Jones Industrial Average plunged more than 600 points during the session, fully erasing its gains for the week.

Dow futures were off more than 300 points in pre-market trading, according to Bloomberg.

The United States and China have both vowed to implement their new tariff policies beginning September 1.

Gold Surges

Plunging stock prices pushed investors into the safety of gold and other precious metals, which continued to rise at the start of the week. Gold for December delivery, the most actively traded futures contract, reached a new six-year high on Monday.

Bullion peaked at $1,559.90 a troy ounce. It was last seen trading at $1,557.70, up $20.10, or 1.3%, from the previous close.

Gold extends rally at the start of the week. | Source: Bloomberg.

Read: Fed’s Jerome Powell Says More Rate Cuts are Possible; How Will This Affect Gold?

Silver futures approached two-year highs, climbing 28 cents, or 1.6%, to $17.84 a troy ounce.

The U.S. dollar index, which tracks the performance of the greenback against a basket of six major currencies excluding the yuan, fell 0.2% to 97.48.

Featured image courtesy of Shutterstock. Chart via Marketwatch.com and Bloomberg.com. 

 

Author:
Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi