The weakness in the Chinese yuan in Aug. 5 trading spread into other Asian emerging market currencies, as the concern of an escalation in the trade war with the U.S. spooked markets.
The Chinese yuan was the third-weakest emerging market economy on the day, shedding 1.6% of its value after the PBoC relaxed its defense of the 7.0 to the dollar level. The Indian rupee (-1.6%), South Korean won (-1.1%) and Indonesian rupiah (-0.8%) were the most affected of the other Asian currencies, which fell en masse against the dollar.
Weaker currencies across the continent will make billions of dollars of Asian exports more competitive compared with their U.S. equivalents just as the Trump administration is attempting to increase the cost of Chinese goods with tariffs.
U.S. President Donald Trump and the Treasury department responded to the devaluation by labeling China a currency manipulator. The long-threatened move has little practical effect as the issue is already a part of trade talks between the U.S. and China. However, it does reduce the likelihood of an imminent end to the Sino-U.S. trade conflict.