SHANGHAI: China’s yuan was steady on Monday, as the prospects of further economic stimulus and a likely increase in dollar selling by Chinese exporters offset the disappointment from Beijing’s debt swap scheme.
Yuan volatility could spike again next year as Donald Trump returns to the White House, potentially escalating trade tensions with China as the president-elect has threatened tariffs in excess of 60% on all Chinese goods.
“What policies will Donald Trump deliver as president is highly uncertain right now,” BNP Paribas said in a note.
“We think the Chinese government and the PBOC are preserving some policy packages to prepare for what may come next year.”
The yuan was stable on Monday, after falling sharply against the dollar since Trump’s election victory.
The US currency has rallied broadly in recent weeks driven by the Trump trade that is set to usher in policies seen as inflationary, potentially tempering the extent of future rate cuts by the Federal Reserve.
The yuan traded at 7.1838 per dollar around midday, little changed from Friday’s close of 7.1860, having dropped 0.8% last week amid fears of tariff hikes under the Trump presidency.
BNP Paribas expects the yuan to fluctuate in the 7.05-7.3 per dollar range during the rest of the year, supported by the modest fiscal package announced recently, corporates’ hedging flows, and the Fed continuing with rate cuts.
Dollar settlement by exporters “still have a decent amount left to sell”, BNP Paribas said.
China’s yuan set for 6th weekly drop
China on Friday unveiled a 10 trillion yuan ($1.40 trillion) debt package to tackle local debt issues, disappointing investors who had anticipated massive fiscal stimulus. But the government hinted at more policies ahead to support the flagging economy.
Traders also took heed of the central bank’s vow on Friday to keep the exchange rate basically stable, and resolutely prevent the risk of overshooting.
So far, there’s no sign of the People’s Bank of China trying to guide yuan’s fixing with counter-cyclical factor despite its depreciation after the US election.
The PBOC on Monday set the yuan’s mid-point at 7.1786 per dollar, the weakest level in a year.