SHANGHAI: The yuan fell to a four-month low on Monday, as tariff threats and mixed purchasing managers’ index (PMI) data raised concern China’s economy might need additional policy support.
The onshore yuan dropped to a low of 7.2675 per dollar, its weakest since July 24, despite a private manufacturing survey on Monday showing China’s factory activity expanded at the fastest pace in five months in November.
The upbeat Caixin/S&P Global survey data followed a modest improvement in the official manufacturing PMI, but a worse-than-expected non-manufacturing PMI, which includes construction and services, over the weekend.
The mixed messages from the official PMI suggested the need for further policy support, leaving the yuan in a challenging position given continuing US tariff risks, said Paul Mackel, Global Head of FX Research at HSBC.
US President-elect Donald Trump on Saturday demanded that BRICS member countries commit to not creating a new currency or supporting another currency to replace the United States dollar or face 100% tariffs.
Trump, who takes office on Jan. 20, said last week he would impose an additional 10% tariff on Chinese goods.
He had threatened tariffs in excess of 60% while on the campaign trail.
China’s yuan gains as dollar extends weakness on trade war concerns
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 7.1865 per dollar, 519 pips firmer than a Reuters’ estimate.
The spot yuan opened at 7.2450 per dollar and was last trading 170 pips lower than the previous late session close at 7.265 as of 0327 GMT and 1.09% weaker than the midpoint.
The offshore yuan traded at 7.2756 yuan per dollar, down about 0.35% in Asian trade.
China’s 10-year treasury yield fell below the psychologically key 2% on Monday to its lowest in 22 years.
Citi analysts said in a note that downside risk for the USD/CNH was limited given the lack of a near-term catalyst.
They said the next window for a major fiscal policy headline was during mid-December’s Central Economic Work Conference and that any fiscal stimulus was likely to be conservative.
The dollar’s six-currency index was 0.245% higher at 106.3.