The Chinese RMB has weakened to two-year low, edging ever closer to the 7 USD mark. On Thursday, the RMB hit 6.965 to the dollar, according to Sentieo. In part, this is a function of the strengthening dollar, buoyed by US Fed tightening. For Chinese exporters, a cheaper RMB could be a boon: It makes their goods more price competitive. (Remember that the last time the RMB crossed the 7 USD mark was at the peak of the trade war in 2019.) But a weak RMB also makes Chinese imports of raw materials and commodities more expensive, which will affect new long-term supply contracts. And China’s worsening economic outlook will put further downward pressure on its currency; trade data this week was disappointing, with both exports and imports missing forecasts by a wide margin (though the RMB has so far held up relatively well against a trade-weighted basket of currencies).
The two big questions: First, does Beijing see the China-Russia axis, and access to relatively low-cost commodities that it provides, as a hedge against the import costs imposed by a weaker currency? Second, what are the implications of a soft RMB for emerging markets? Some may be doubly squeezed by the strong dollar—which can add to debt pressures and make imports more expensive—and the weak RMB, which tempers the competitiveness of nations that compete directly with Chinese exports.