The decision of United States’ Donald Trump to levy additional 5 percent tariff on $300 billion worth of Chinese goods effective September 1, coupled with Beijing’s weaker Yuan, will negatively affect emerging market (EM) currencies.
An index that tracks the total return of 25 EM currencies relative to the US dollar, sustained its bearish streak last week, down 1.5 percent year-to-date.
The 17-month old trade war could further slow global oil demand, experts say, further weighing on oil prices, and major central banks might just have to slash policy rates to stimulate global growth.
“Mounting trade tensions are putting depreciation pressure on the Yuan”, said a team of analysts at Washington-based Institute of International Finance (IIF) in a note to investors.
“For the rest of the EM, Yuan weakening carries a contagion risk and adds to an already unsettled environment,” they said.
As the world’s largest energy consumer that plays a significant role in how crude oil is priced, Beijing’s weaker Yuan at its lowest level against US dollar since 2008 portends serious implications for Nigeria, Africa’s top crude producer, in terms of softening global oil demand and lower oil prices.
This justifies why Brent, Nigeria’s benchmark grade, sold for less than $60 per barrel budget peg since the trade war intensified early August. It hovered around the benchmark price on Friday.
ISRAEL ODUBOLA
