HONG KONG: China’s yuan hovered near a 14-month low against the US dollar on Friday heading for a fourth straight week of losses, as falling yields and domestic rate cut expectations continued to weigh on the currency.
The spot yuan traded at 7.2995 to the dollar by 0255 GMT after briefly weakening past the key 7.3 per dollar threshold on Thursday, a level not seen since November 2023. It hit the key threshold again in morning trade.
That added to the currency’s 2.8% drop in 2024, its third straight year of decline, as domestic woes around a moribund property sector, weak consumption, and falling bond yields drove capital flows out of the yuan to higher-yielding dollars.
Worries about the Chinese economy carried into the new year, with stocks plunging nearly 3% on Thursday, the first day of trading in 2025.
Long-dated Chinese yields also continued to slide, with 10-year and 30-year government bond yields each weakening some 3 basis points to touch fresh record lows on Friday. Meanwhile, the prospect of a rate cut is heaping more pressure on the yuan.
China’s central bank said it was likely to cut interest rates from the current level of 1.5% “at an appropriate time” this year, the Financial Times reported on Friday, citing comments the bank made to the newspaper.
The poor performance of China markets indicates weakening sentiment around Chinese assets ahead of Donald Trump’s return to the White House, Alvin Tan, head of Asia FX strategy at RBC Capital Markets, said in a note on Friday.
China’s yuan poised for third straight yearly drop, Hong Kong dollar shines
“The only factor restraining USD/CNY now is the daily reference rates being held consistently under 7.20 against the swelling USD tide,” he added.
Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1878 per dollar, 990 pips firmer than a Reuters’ estimate. Based on Friday’s official guidance, the yuan is allowed to drop as far as 7.3316.
The stronger-than expected fixing came as the US dollar continued its bullish momentum. The dollar index, which measures the US currency against six other units, was at 109.2, just below the two-year high of 109.54 it touched on Thursday after a 7% gain in 2024.
“I do think USD/CNY is likely to be restrained below the 7.33 upper limit through the Lunar New Year, with the main wildcard being what Trump might do after his inauguration on January 20,” Tan said.
The offshore yuan traded at 7.327 yuan per dollar, up about 0.18% in Asian trade.
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