SHANGHAI: China’s yuan weakened on Monday to a more than two-month low against the dollar, underpinned by signs of strength in the U.S. economy and rising bets that Donald Trump would win a second term as president.
The Chinese currency, which has lost about 1.6% against the dollar in October, looks set to snap three straight months of appreciation, weighed down by geopolitical uncertainty and threats of bigger trade tariffs on Chinese goods if Trump wins.
The onshore yuan was trading 0.13% lower at 7.1316 to the dollar by 0300 GMT, after hitting a trough of 7.1355, its weakest since Aug 23.
Its offshore counterpart hit a low of 7.15 to the dollar, its softest level since Aug. 19, before standing at 7.1415 by around midday.
As part of Trump’s pitch to boost American manufacturing, he has promised voters this time that he will impose tariffs of 60% or more on goods from China.
“We think that a 4% to 5% move to 7.40-50, which would offset around half of the potential growth hit, if tariffs rose 20% on Chinese imports, is a reasonable expectation,” analysts at Goldman Sachs said in a note.
“The People’s Bank of China (PBOC) would likely need to balance allowing the yuan to depreciate in an orderly manner versus preventing a significant build-up of capital outflow pressures.”
Before the market opened, the PBOC set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1307 per dollar, its weakest since Aug. 23 and 4 pips firmer than a Reuters’ estimate of 7.1311.
Currency traders said another market focus was the approaching Nov. 4 to Nov.8 meeting of the top legislative body, expected to approve more fiscal stimulus measures.
China’s central bank also launched a new lending tool on Monday to inject more liquidity into the market and support credit flow in the banking system, ahead of the year-end expiry of loans running into trillions of yuan.
The new measure would allow the bank to maintain an easing bias, said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
“It will allow the central bank to … reduce the impact from monetary easing on the yuan,” he said, adding that it would help offset the maturing medium-term lending facility (MLF) loans.
