The slight gains in U.S. equities on Monday failed to influence Asian investors as trade fears and the Renminbi’s slide continued to drive risk aversion. This sharp depreciation in the Chinese currency is worrying investors. In August 2015, the U.S. dollar/Canadian dollar (USD/CNY) currency pair appreciated from 6.21 to 6.44, a two-day gain of 3.85%.
Modern wars are fought with precision tactics and tools like drones, targeted strikes, and heavy reconnaissance to identify where the enemy is weakest. But, as any military historian will tell you, wars used to involve far more blunt tools, like catapults and trebuchets, to inflict maximum damage on the enemy; friendly fire be damned.
While the speed of selling has slowed down compared to the early part of the week, emerging market currencies have continued to show weakness in the early hours of Thursday morning. The Thai Baht, Malaysian Ringgit, Chinese yuan, Indonesian Rupiah and Indian Rupee are all trading lower at time of writing.
The Chinese yuan plummeted 3%--its lowest this year, hitting a six-month low against the dollar (USD). During the session, the yuan was down more 0.5% to against the USD for the third straight day in a row. There hasn’t been a drop this dramatic since China’s August 2015 devaluation where the currency fell 2.8% in just two days.
It is slowly shaping up to be another rough and rocky trading week for global equity markets as escalating trade tensions between the United States and China weigh on risk sentiment. A risk-off vibe continues to linger in the air with investor confidence clearly shaken after the Trump Administration announced plans to restrict Chinese investments in American businesses.
All eyes are on the Turkish Lira this morning with the currency rallying sharply in early trade today, following the news that Turkish President Recep Tayyip Erdogan has won the weekend election in Turkey. The Lira had advanced as much as 3% at time of writing with the currency currently standing as the only emerging market to be trading higher against the U.S. dollar.
It has been a painful week of trading for the dollar. The Greenback has essentially reversed its recovery from the previous two trading weeks, to return back toward levels not seen since December 2014.
In the previous editions of the Market Overview, we have already analyzed the relationship between gold and some major world currencies, such as the U.S. dollar, the euro, or the Japanese yen. But what is the link between the Chinese yuan (officially: renminbi) and the yellow metal?
“Sell volatility, buy the dip” has been the investor mindset for some time when it comes to the equity markets. It appears that this mindset is holding firm, after investors brushed away the market uncertainty that was created in the early hours of Tuesday morning, following the news that North Korea fired a missile over Japan.