Falling Currencies And A Declining Stock Market

Today’s market conditions suggest that the global currencies have taken a dip, especially the Chinese Yuan. The falling currencies now pair the stock market, which has also been declining since the last few weeks amid trade concerns between the US and China.

The Chinese Yuan dropped to its lowest level in 2018 against the dollar after People’s Bank adopted different monetary policies to avoid an economic slowdown. If the dollar continues to rise, it will become like a 2015 scenario, when there was too much outflow of capital and the dollar continued to rise.

The Chinese Yuan continues to fall as investors no longer think that China is ’manna from heaven’ as far as markets are concerned. China has been slammed by the US with tariffs, which has greatly affected the country’s economic position. The Chinese Yuan seems to be following the trends of all major currencies as all of them are on a downward trend. Measuring the currency spot return Vs. the YTD (%), we can see other major currencies declining too.

For instance, the Brazilian Real, in our comparison, has shed -12.60%, while the South African Rand has shown a -8.56% decline. The Philippine Peso also dropped by -6.60%, while the Russian Ruble shed -8.17%. The same holds true for the Indian rupee, South Korean Won and the Indonesia Rupiah all that have been in negative territories. The Indian rupee dropped by -6.24%, whereas the South Korean won dropped by -4.16%. Other currencies reported similar declines as well.

It seems like the Russian Ruble has dropped despite the fact that oil prices are rising since the very beginning of the year. There are many factors that affect the currencies including the hike in interest rates, public debt, political instability and the overall economic performance of the global economy but the Market currently seems to be concerned about the Balance of Payment situation that could pan out because of trade wars. It is also true that the global stock markets are declining because of the excessive trade tensions between US and China that have had a negative impact on the global markets. The global stock market has fallen and so has the foreign exchange currencies.

These currencies, and lately, the Chinese Yuan, have dropped because the trade tensions between China and US do not seem to evaporate. The Chinese Yuan has been falling since the start of April but the pace of its decline is increasing. It has weakened by nearly 3% as compared to the dollar in the past three trading sessions.

The explanation for the falling Yuan seems simple. A Chief at Morgan Stanley, Hans Redeker, while commenting on it, said, “The latest fund shows that foreigners are making sure they liquidate their investments made in Chinese assets in the last year via the Shanghai-Hong Kong Connect as they no longer deem China as a safe hub for investments”.

The change in China’s currency comes after a significant amount was first put in the economy but is now being taken back. It is also being believed that the situation for Chinese Yuan might deteriorate further before it improves.

Aside from the Chinese Yuan, the Shanghai Composite index that contains equities has also dropped to its two-year low levels of 2859. Analysts also observe that the monetary trends in China are also “unambiguously weak”, which also have had a negative impact on the country’s currency, while on the other hand, US’s hawkish policies are increasing the US dollar in worth.

Things can easily go out of hand for China if no strict measures are taken. However, a lot doesn’t seem to be in China’s control in the first place as external factors such as the decision of Trump or the move by investors to pull out funds from the country hint towards the fact that things seem to be weakening greatly for China. And the weak global outlook shows exactly what a negative impact the global decisions have on global currencies all that have traded in negative.

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