Weaker Chinese yuan talk raises spectre of FX race to the bottom

SINGAPORE/LONDON, Dec 11 (Reuters) - High-level discussions in China about allowing its currency to weaken next year underscore the risk for investors and companies that big foreign exchange moves are coming as U.S. tariffs shift global trade and money flows, analysts said.

Reuters reported on Wednesday that China was considering letting the yuan fall to weather what is likely to be a sharp hike in tariffs, citing people familiar with the matter. The yuan immediately dipped against the dollar, along with currencies across Asia which are highly sensitive to Chinese demand.

While a weaker yuan had been widely expected, with pressure on the exchange rate since the election of Donald Trump as U.S. president, framing it as a policy shift may herald the start of a new round of global tariffs, trade tensions and currency intervention.

"Currency adjustments are on the table as a tool to be used to mitigate the effects of tariffs. I think that is clear," said Fred Neumann, chief Asia economist at HSBC in Hong Kong.

"Taking the currency weaker might be a signal by China to the rest of the world that there are exchange rate implications of imposing tariffs."

A cheaper exchange rate helps exporters by making their prices more competitive internationally.

The yuan dipped about 0.3% and as far as 7.2803 to the dollar after the Reuters report. The Australian dollar , which is sensitive to moves in the yuan given its hefty commodity exports, touched a one-year low.

Trump has said he plans to impose a 10% universal tariff on imports to the U.S. and a 60% tariff on Chinese goods.

Financial markets have been bracing for more volatility from his inauguration on Jan. 20, but have been unsure how seriously to take his threats.

Reuters spoke to three people who have knowledge of the discussions abo...
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