Oil slide halts as China provides support for the yuan
The People's Bank of China set its currency at a stronger midpoint to the dollar following historic plunge on Monday
A decline in oil prices has been halted after China took measures to strengthen the yuan following the currency's plunge to its lowest level in over a decade.
Brent was trading at $59.88 (Dh221.86) per barrel at 3:49pm UAE time after closing at a seven-month low of $59.81 on Monday. The renminbi slumped past the key 7 yuan per dollar threshold for the first time in 11 years on Monday after US President Donald Trump announced additional 10 per cent tariffs on $300 billion worth of Chinese imports. The measures are in addition to the 25 per cent tax the US earlier imposed on Chinese goods, which led to a global slump in commodity trade.
Brent lost 7 per cent of its value and plunged to $60.5 on Thursday after the tariff announcement before recovering to $61.89 the following day as markets anticipated further bearishness as a result of the US move against China.
The trade war stand-off between the US and China has weighed on markets, restricting Brent to a tight band between $60 and $67 per barrel since March. The standstill has buffered oil from geopolitical tensions in the Middle East, where tankers transiting the Strait of Hormuz - the world’s busiest chokepoint - have come under attack since May.
On Sunday, Iran's Islamic Revolutionary Guard announced the seizure of another tanker in the Arabian Gulf, as it claimed the vessel was abetting fuel smuggling in the region. The unidentified tanker is the third to be impounded by Iran near its territorial waters.
Beijing's efforts to limit the weakness in the yuan by fixing it at a stronger midpoint to the dollar came following accusations by Mr Trump on Monday that China was manipulating its currency.
The US President tweeted after the yuan’s plunge: "China dropped the price of their currency to an almost a historic low. It’s called 'currency manipulation'. Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”
The US Treasury’s designation of China as a currency manipulator on Monday is likely to do nothing to ease the ongoing friction between the world’s two largest economies.
The Treasury’s move to name China a currency manipulator marked a "significant, symbolic escalation of the US-China trade conflict", the Bank of Singapore said in a note.
The move heightened fears that trade tensions could spiral out of control, with the tit-for-tat measures increasing the risk of global recession, it added
Wall Street and Asian stocks plunged following the latest escalation between the two countries. The S&P 500 index lost 3 per cent of its value to reach 2,844.74 on Sunday, while the Dow Jones Industrial Average dropped 2.9 per cent to reach 25,717.74. The Nasdaq composite index lost 3.5 per cent to reach 7,726.04.
Asian stocks also shed their value in early trading on Tuesday, with China’s main index declining 2.5 per cent, while Tokyo fell by 2 per cent, but later made a recovery. By 12.00 noon UAE time, Tokyo's Nikkei was 0.65 per cent lower at 20,585.31 and the Shanghai SE index was trading 1.6 per cent lower at 2,777.56.
Updated: August 6, 2019 04:23 PM