SHANGHAI: China’s yuan fell to its lowest level against the US dollar in more than three months on Thursday, as continued momentum from Donald Trump’s presidential election victory propelled the greenback to a one-year high against major peers.
Trump’s proposed tariffs and other policies such as tax cuts are seen as inflationary and likely to keep US interest rates relatively high, buoying the dollar and pressuring currencies of its trading partners.
“Tariff risks under Trump Presidency 2.0 have emerged as a major concern for FX markets, in turn bolstering the USD,” said Chang Wei Liang, currency and credit strategist at DBS.
But he said the yuan’s weakness would not be disproportionately larger than other Asian currencies because “even in the worst-case scenario of an immediate 60% tariffs on all Chinese exports to the US, the impact on Chinese growth would still be manageable at under 1% of GDP.”
The People’s Bank of China could also anchor yuan expectations through daily fixings, Chang added.
Prior to the market opening, the PBOC set the midpoint rate , around which the yuan is allowed to trade in a 2% band, at 7.1966 per dollar, 360 pips firmer than a Reuters estimate.
Wednesday’s fix was 314 pips firmer than a Reuters estimate.
The spot yuan opened at 7.2291 per dollar and was last trading 112 pips lower than the previous late session close at 7.2442, lowest level since Aug. 2.
Although the PBOC set the fixes firmer than broad estimates over the past two days, Liang Ding, an analyst at research firm Macro Hive, said the central bank’s recent communications signalled its lowest intent to intervene in more than a year.
Ding said that “the PBOC’s key objectives are a stable CFETS RMB index and strong cross-border payments and these two conditions are currently met.”
PBOC pulls China’s yuan off 3-month low with stronger-than-expected fix
China’s trade-weighted CFETS yuan basket index rose to 99.46 on Thursday, the highest in more than a week. The index is up 2.53% so far this year.
The offshore yuan traded at 7.257 yuan per dollar, down about 0.2% in Asian trade.
The dollar’s six-currency index was 0.150% higher at 106.62.
During Trump’s first term as president, the yuan weakened by about 5% against the dollar when an initial round of US tariffs were imposed on Chinese goods in 2018, and fell another 1.5% a year later when trade tensions escalated.
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