27.05.202021:22 Forex Analysis & Reviews: China will lower yuan below $7.20

Despite the general positive, which for some reason the markets live by, it is impossible not to notice that the USD/CNY pair is attacking the 2019 high. Will the friction of the United States and China lead to the fact that the latter cannot stand it and pull the trigger, enabling the yuan to fall?

The US dollar to both RMB (external and internal) approached the highest levels, and this is not due to the strengthening of the US currency. The dollar is getting cheaper on all fronts, both to developed and developing currencies. Official Washington announced plans to respond by the end of the week to China's announcement of a new national security law for Hong Kong. Investors should, with bated breath, monitor the development of events and the behavior of the USD/CNY pair. Instead, markets chose to win back the hope of a vaccine and economic recovery after the gradual removal of quarantine.

I wonder what reaction will follow to the possible departure of the USD/CNY rate above 7.20. The pair came as close to this mark as possible. If you look back, you can recall how the currency policy of China had rattled world markets in August 2015. The echo effect of the same policy was observed by the markets until the end of 2016.

USD/CNY

China and the United States are waging a trade and technological war, which is exacerbated by the coronavirus pandemic. Preliminary arrangements between the two largest trading partners of the world on the verge of collapse. Moreover, a new battlefield may appear - investing capital, Crossborder Capital CEO Michael Howell warned in a CNBC interview.

Governments and global central banks have deployed unprecedented stimulus packages in an attempt to offset the economic shock from the pandemic. In March, the US president approved a historic bill worth $2 trillion. Meanwhile, demand for the dollar as a safe asset grew amid an outbreak, causing a deficit and putting pressure on other currencies. In response, the US Federal Reserve expanded its dollar swap lines by adding lines to more central banks, including Australia, South Korea, and Brazil. This was done so that more institutions could gain access to dollar financing.

American politicians most likely have ulterior motives in order to make their national currency more accessible internationally.

"The decision to exchange dollar swap lines with 14 other countries, actually creating a group of 15 countries, including America, which have access to dollars, is a crucial event," Howell said in an interview with CNBC.

He also called the move "the economic equivalent of NATO," which was once created to contain the Soviet Union military. Now the US is trying to economically restrain China.

America and China are competitors, it is impossible not to notice. China seeks to play a more important role on the world stage. The pandemic crisis simply accelerated the process.