Yuan hits record low amidst escalating US-China trade tensions

China resumed market activities on Wednesday following the extended Lunar New Year break amidst ongoing trade tensions with the United States. The backdrop of these tensions has significantly impacted global currency markets, particularly the yuan, which experienced a sharp decline to a historic low on Monday due to new U.S. tariffs imposed on Chinese goods. In retaliation, China introduced tariffs on U.S. imports, further escalating the situation. As traders returned from the holidays, many looked closely at the People's Bank of China’s midpoint rate fix of the yuan, anticipating its implications for currency valuation in response to U.S. trade policies. The Australian and New Zealand dollars, often seen as proxies for the yuan, held their gains as traders monitored the yuan’s fixing and signaling from Beijing. Despite the turbulent environment influenced by tariffs, some analysts expressed surprise at the resilience and positive risk sentiment in currency markets, indicating potential optimism among traders about future negotiations between the United States and other trading partners, especially given the delay of tariffs on Canada and Mexico. The ongoing situation remains dynamic, with many experts suggesting that the People's Bank may increase its tolerance for a weaker currency as a strategic move to mitigate the effects of U.S. tariffs, allowing the yuan to fluctuate accordingly.