China’s yuan hits 4-m low

The Chinese yuan weakened against the US dollar to a four-month low following President-elect Donald Trump’s announcement of a 25 per cent tariff on Mexican and Canadian products and an extra 10 per cent tariff on Chinese goods.

Offshore yuan declined by about 0.3 per cent to 7.2730 per dollar, its lowest level since July 30. Meanwhile, the onshore yuan also dropped after the market opened.

“The directional impact is clear for the yuan – weaker – but Chinese authorities will be nervous about devaluing too much and encouraging outflows,” said Ben Bennett, head of investment strategy for Asia at LGIM.

Before the market opened, the People’s Bank of China (PBC) set the midpoint rate for the yuan at 7.1910 per dollar, which was stronger than expected.

Analysts at Nomura noted that the fixing’s ability to control yuan depreciation expectations is limited.

They suggested that if the USD/CNY rate goes above 7.30, market dynamics may change, with increased USD demand. This could pose a challenge for authorities if they do not allow the yuan to weaken further.

Nomura recommended taking a long position on the dollar against the offshore yuan. The spot yuan opened at 7.2524 per dollar and was trading 105 pips lower than the previous late session close at 7.2553 as of 0239 GMT.

Liang Ding, an analyst at research firm Macro Hive, stated that actual tariff announcements and negotiations will influence the yuan in the upcoming quarters.

Ding also mentioned that markets might start factoring in additional risk related to a potential second trade war as Trump’s inauguration approaches, given his campaign rhetoric of keeping promises.

Attribution: Reuters

Subediting: M. S. Salama