Indonesian Rupiah falls 1.35 percent on Wednesday as investors concerned over Bank Indonesia’ independency - Photo: Special

JAKARTA (TheInsiderStories) – The escalation of the United States (US) – China trade war pushed the Chinese Yuan through the key 7.0 threshold against the Greenback on August 5, for the first time since May 2008. It said, the weaker of Remimbi will help to mitigate the impact of the latest round of US tariff measures on the competitiveness of Chinese exports.

However, the Chinese currency’ slide has triggered a strong response from Washington, with the US Treasury acting immediately to designate China as a ‘currency manipulator.’

As a result of this decision, US Treasury Secretary Steven Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’ latest actions. The US government could also decide to take punitive unilateral measures against China through implementing higher tariffs as countermeasures to what is perceived by the US to be ‘currency manipulation.’

According to Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit, the decision by the US Treasury to designate China as a ‘currency manipulator’ represents a further major escalation in the US-China economic war, opening up a new front relating to the Chinese currency. The decision opens the door for further punitive US tariff measures against China in response to the yuan’s slide against the US dollar.

The Remimbi’ slide against the US dollar from an exchange rate of 6.27 on April15, 2018 to 7.03 on Tuesday has also created fears in global financial markets about the risks of currency wars, due to the impact of the currency’ slide for the export competitiveness of other emerging markets competing against Chinese manufacturing exports.

He rated, the combined impact of the escalating US – China trade war and the downturn in global electronics new orders have resulted in weakening exports during recent months for many Asia-Pacific industrial economies, including Japan, South Korea, Hong Kong and Singapore.

Biswas opined that the Yuan’ slide against the US dollar will reinforce negative sentiment in global financial markets towards emerging markets currencies. Risk aversion towards emerging markets currencies is also increasing due to the escalating US – China trade war and the recent wave of policy easing by APAC central banks, including the Bank of Korea, Reserve Bank of India (RBI), Bank Negara Malaysia, Bangko Sentral ng Pilipinas (BSP), Bank Indonesia, Reserve Bank of Australia (RBA), and Reserve Bank of New Zealand.

The Federal Reserves’ rate cut on July 31 and the latest escalation in the US – China trade war has also opened the door for another round of policy rate cuts by a number of APAC central banks, with the Bank of Korea, RBI, BSP, Bank Indonesia and RBA all having an easing bias in the remainder of 2019, he ended.

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