SHANGHAI: China’s yuan slipped on Monday despite a broadly weaker dollar, dragged lower by worries over an escalating global trade war and fresh signs of economic wobbles.
Analysts say more proactive government policies would lend support to the yuan, noting that Beijing is not showing any unwillingness to use currency weakness as a way of countering the economic impact of higher US tariffs.
The onshore yuan was trading at roughly 7.25 per dollar around noon time, 0.2% weaker than the previous close.
The yuan’s weakness comes even as the dollar index slipped further following five straight sessions of declines amid growing worries that US President Donald Trump’s trade war could hit the US economy.
“We expect USD/CNY to stay largely range-bound over the next three months, with the key swing factor leaning towards the broad USD and fresh tariff news,” Goldman Sachs said in a report.
“The ongoing US trade probe, set to conclude by April 1, may trigger further tariff headlines, adding to FX uncertainty.”
In further signs of growing trade tensions, China on Saturday announced tariffs on over $2.6 billion worth of Canadian agricultural and food products, retaliating against levies Ottawa introduced in October.
Sentiment was also undermined by weekend data showing China’s consumer price index in February fell at the sharpest pace in 13 months, deepening worries about the economy following last week’s disappointing trade data.
However, analysts say the yuan’s fall would be limited by growing pessimism towards the US economy due to tariff uncertainty.
The dollar index has slumped 3.5% so far this month, while the yuan has strengthened 0.3% against the greenback.
“With growing expectations of a Trump-induced US economic recession, ‘US exceptionalism’ could unravel … and it’s time for Chinese companies and individuals to think twice about buying US dollar,” said Guan Tao, economist at BOC International (China).
He added that new US tariffs will have less of an impact on the yuan as markets had been expecting worsening trade relations under a second Trump administration.
Prior to market open on Monday, the People’s Bank of China (PBOC) set the yuan guidance rate at 7.1733 per dollar, keeping the fixing stable despite two rounds of US tariff increases on China.
“It appears the PBOC may be less willing to use FX weakness, at least at this juncture, when the US tariff policy remains fluid and changing rapidly,” Goldman Sachs said.
“Moreover, keeping the FX stable offers the PBOC more policy options later.”
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