SHANGHAI: The yuan was little changed on Friday against the dollar, but is headed for its tenth straight weekly loss amid concerns that new tariff threatened by President-elect Donald Trump will heighten strains on the struggling Chinese economy.
Analysts expect the dollar to remain firm as Trump’s policies are expected to drive up US inflation, but they believe Beijing will prevent the yuan from falling too much.
“We anticipate some depreciation pressure in an expected strong dollar environment,” Lynn Song, Greater China chief economist at ING, said in a note.
However, “we don’t expect an intentional large-scale depreciation and think the yuan will remain a low-volatility currency vis-à-vis most other Asian currencies.”
The yuan was changing hands at 7.2549 per dollar around midday, little moved from the previous close.
Although the currency has rebounded from a one-year low of 7.2996 hit on Tuesday, it is poised to register its longest weekly losing streak since 2018.
The dollar index fell to one-week low overnight and “the USD’s consolidation should unwind the upside pressure building” in the yuan, aided by ongoing attempts by China’s central bank to restrain its decline, said Alvin Tan, strategist at RBC Capital Markets.
Recent data has painted a mixed picture of China’s economic recovery, with manufacturing activities improving, but property sales in many Chinese cities remaining weak.
China’s yuan eases on US rate path worry, tariff risks
China’s “economic landscape is unarguably dull, and the absence of excitement is perhaps the most salient feature,” said John Browning, managing director of BANDS Financial.
He doesn’t expect huge stimulus to be announced during next week’s Central Economic Work Conference, as “Beijing’s largesse will be reserved until after Trump is restored to the White House and the trade war formally begins.”
Top policymakers will gather at the conference to agree on major economic goals for next year. But the target for 2025 growth, one of the most closely-watched indicators globally for clues of Beijing’s near-term policy intentions, likely will not be officially announced until an annual parliament meeting in March.
During Trump’s first term as president, the yuan weakened about 5% against the dollar after the initial round of US tariffs on Chinese goods in 2018, and fell another 1.5% a year later when trade tensions escalated.
Growth worries and expectations of further monetary easing by Beijing pushed China’s 10-year treasury yields below 2% to record lows this week, worsening the yield disadvantage against the US, and exerting downward pressure on the yuan.
ING’s Song expects the onshore yuan to move within a band between 7.00-7.40 per dollar, but could fall further to 7.50 “if tariffs come in earlier or more aggressive than our forecasts.”
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