US Dollar, Yen, Gold Prices Up as China Drops Yuan Amid Trade War

CHINA, YUAN, YEN, US DOLLAR, GOLD, TRADE WARS, TRUMP - TALKING POINTS:

• China weakens Yuan fix to 2019 low, pushes USDCNY and USDCNH past 7.00
• US Dollar, Yen and gold prices surge while pro-risk AUD and NZD trade lower
• S&P 500 futures swoon, suggesting risk aversion probably has scope to continue

The anti-risk US Dollar and Japanese Yen shot higher alongside gold prices after China set the daily reference rate for the benchmark USDCNY exchange rate at 6.9225, marking the weakest level yet this year. Financial markets responded instantly, with the offshore USDCNH – a version of the Yuan that trades freely on global markets – surging past the psychologically significant 7.00 figure.

USDCNY, USDCNH and S&P 500 futures 15min chart created in TradingView

The move reflects escalation in the US-China trade war and marks retaliation after President Donald Trump said he would levy an additional 10 percent tariff on $300 billion in Chinese imports. The PBOC – China’s central bank – explicitly said that the Yuan’s push north of the 7.00 mark against the Greenback reflects “tariff expectations [and] protectionism”.

Gold, S&P 500 futures, JPY and USD 5min chart created in TradingView

Bloodletting looks likely to continue as the trading day continues. Futures tracking the bellwether S&P 500 stock index are trading down over 1 percent in the Asia Pacific session. That hints at aggressive liquidation on the horizon after the opening bell rings on bourses in Europe and the Americas, giving investors there an opportunity to respond to overnight developments.

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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter