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China's currency, the renminbi, has fallen to its lowest level against the dollar in six months. It follows a strong period of growth for the currency. But like other currencies, it's fallen since the start of the quarter. But the big concern for investors is the sharp fall in the last five days, and that is leading to concerns that US-China trade tensions is starting to impact in the foreign exchange market.
The issue for investors is what the People's Bank of China, the central bank does, because after all, this is not a free-floating currency. It fixes a rate, and then labels the currency to trade within a certain bound. The thing is that the PBOC does not want to precipitate a fast depreciation of the currency.
The reason for that is because of capital flight. We've seen that in recent years. That is something that investors get very nervous about, and that's something that the Chinese authorities want to avoid. But analysts are also asking whether the state of US-China trade tensions has reached a pitch to the point whereby China might be using the exchange rate as a way of fighting back against the US.
