Economists say the Chinese government is artificially lowering the value of the yuan to offset US tariffs that will virtually put levies on all goods coming from mainland China.
Financial analysts predict the yuan value will hover right above 7 against the US dollar till the end of the year.
A depreciating yuan aids firms exporting out of China by lowering the price of exports and giving companies a competitive advantage against firms exporting out of other countries.
The yuan hit a ten year low last month in what many US government officials labeled as “currency manipulation.”
“China dropped the price of their currency to an almost a historic low,” wrote US President Donald Trump last month on the social media platform Twitter.
“It’s called ‘currency manipulation,'” he added.
Financial analysts are in agreement that the Chinese government manipulates currency rates as a tactical weapon in the trade war.
“Looking at how the currency trades, it is very clearly demonstrated that it is being used as a way to offset the effects of tariffs,” said Eric Fishwick, CLSA’s top economist, in an interview on US TV.
“The yuan is allowed to weaken whenever the US ratchets the tensions higher,” he added.