SHANGHAI: China’s yuan skidded to a 3-1/2-month low against the dollar on Tuesday, hurt by broad strength in the US currency and persistent market worries over higher tariffs on Chinese goods during Donald Trump’s second presidency.
During Trump’s first presidency, the yuan weakened about 5% against the dollar in the initial round of US tariffs on Chinese goods in 2018, and fell another 1.5% a year later when trade tensions escalated.
As part of his pitch to boost American manufacturing during the election campaign, Trump said he will impose tariffs of 60% or more on goods from China.
The proposed tariffs, as well as other policies such as tax cuts, are seen as inflationary and likely to keep US interest rates relatively high in a blow to currencies of trading partners.
“The yuan was one of the main victims of last week’s US election results,” Roman Ziruk, senior market analyst at Ebury, said in a note.
“The relationship between the US and China will be difficult to map for some time, but investors are preparing for a more hostile environment, particularly around trade.”
The onshore yuan fell to a low of 7.2333 per dollar in morning deals, the weakest level since Aug. 2, before trading at 7.2267 as of 0327 GMT. Its offshore counterpart followed the weakening trend to a near 3-1/2-month trough of 7.2454 per dollar before changing hands at 7.2393 around midday.
The yuan is down 1.5% against the dollar this month, and 1.7% weaker this year.
China’s major state-owned banks have been seen selling dollars regularly in recent sessions to prevent the yuan from weakening too fast, sources told Reuters.
Prior to the market opening on Tuesday, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1927 per dollar - its weakest since Sept. 12, 2023 and 17 pips firmer than a Reuters’ estimate of 7.1944.
“There has so far been limited pushback by the PBOC through the daily USD/CNY fix against the USD surge,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
“Assuming Trump reiterates his tariff plans in the weeks leading to his inauguration in January, USD/CNY is likely to climb back to the cycle high’s 7.30/7.35 zone.”
Separately, market showed muted reaction to China’s weak October credit lending data as a ramp-up of policy stimulus to buttress the shaky economy failed to boost credit demand.
Comments