SINGAPORE: China’s yuan fell to its lowest level in nearly three weeks as mainland markets opened on Tuesday after a week-long break, weakened by the US dollar’s broad strength as frenzied buying over recently unveiled stimulus plans propelled stocks higher.
By 0334 GMT, the onshore yuan was 0.79% lower at 7.0666 to the dollar after trading in a range of 7.0488 to 7.0846. It had closed at 7.0175 per dollar before the holiday.
The intraday low matched a level last seen on Sept. 19.
China’s offshore yuan was last at 7.0664 per dollar around the midday.
“Yuan has weakened because markets went into the holidays short dollar-CNH and the stronger dollar led by Federal Reserve repricing took some of these weak positions out,” said Rong Ren Goh, a portfolio manager in the fixed-income team at Eastspring Investments.
The dollar has rallied to seven-week highs against major currencies after a strong jobs report on Friday slashed bets for large Fed rate cuts and escalating tensions in the Middle East dented risk sentiment.
China’s yuan dips on firmer dollar but strong exports limit losses
The dollar is at multi-week highs against the euro, sterling and the yen.
Chinese shares soared to two-year highs on Tuesday following the holiday, adding to a blistering rally seen before the break as investors bet stimulus plans would support the economy. Hong Kong shares though pulled back some recent gains built off of the stimulus excitement.
“RMB weakness, geopolitical tension and derivative exuberance pose risks to the current rally,” Jason Lui, head of APAC equity and derivative strategy at BNP Paribas, said in a note.
He said the stronger dollar gave Chinese companies a chance to sell their accumulated dollar assets, but added that the broader dollar rally and yuan volatility may prompt some uncertainty for equity investors.
The chairman of the country’s economic planner, the National Development and Reform Commission, Zheng Shanjie said on Tuesday that China was “fully confident” of achieving its full-year economic and social development targets, adding some of 2025’s budget will be issued this year to support projects.
China’s bond market also saw some volatility, with 30-year treasury yields jumping 8 basis points before pulling back to a rise of about 2 basis points around midday.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.0709 per dollar, its weakest since Sept. 19, and 85 pips firmer than a Reuters’ estimate of 7.0709.
The fixing was down 0.9% from the previous fix, the biggest drop in percentage terms since May 2022.
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