China's premier just ruled out currency manipulation as a trade war tactic

(Steve Marcus / Getty Images)
  • Chinese Premier Li Keqiang said authorities won’t intentionally lower the renminbi in response to US sanctions.
  • China’s currency has already fallen by around 9% against the USD since April this year.
  • Following Li’s comments, the Australian dollar has pushed higher against all the major pairs in afternoon trade.

  • Chinese premier Li Keqiang has trumpeted the benefits of global trade, in a speech at the World Economic Forum today in Tianjin, China.

    And as trade tensions with the US heat up, Li said Chinese policy makers have plenty of tools at their disposal to offset any negative effects from US tariffs.

    In view of that, he highlighted that China won’t seek to devalue its currency as a competitive weapon against the US, Reuters reports.

    The Chinese renminbi (CNY), has already fallen by around 9% against the USD since the greenback began to strengthen in April.

    Commonwealth Bank

    And in the context of the trade war, those falls “are worth noting”, said CBA commodity analyst Vivek Dhar.

    It’s “effectively meant an approximate 9% swing against the US in the trade war, as Chinese goods for US buyers are 9% cheaper”, Dhar said.

    “That helps partly explain why Trump is aiming to lift the tariff rate to 25% on the $US200 billion tranche of Chinese goods next year.”

    Dhar said the if the reniminbi continues to come under pressure as the trade ware escalates, that could result in downward pressure on commodity prices.

    But based on Li’s comments, a sharp rise in USD/CNY to above 7 — from current levels of around 6.85 — look unlikely.

    And support for China’s currency from the highest levels of the government appears to have provided a catalyst for AUD demand in afternoon trade.

    A short time ago, the Aussie was higher against all the major pairs with a gain of around 0.4% against the greenback:

    Li also said that China’s economy is facing a challenging period, as policy makers try to foster growth while also reducing leverage.

    Some analysts have speculated that Beijing may boost stimulus efforts to offset to effects of the trade war.

    But according to Reuters, Li said today that macro-economic policies will remain steady, and China won’t resort to any strong stimulus measures.

    Elsewhere in Li’s speech, he said the trend of globalisation is unstoppable and the principles of free trade should be maintained, and that the process of China opening up its economy will only quicken from here.

    Asian markets are having another positive day amid the latest tit-for-tat US-China trade tariffs. China’s benchmark Shangahi Composite index went into the lunchbreak around 1% higher.

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