Agencies
New York
Traders defied China’s efforts to support the yuan, sending the currency to a one-year low on bets policymakers will have to keep easing monetary policy to revive the economy.
The yuan was dragged down as the nation’s 10-year bond yields slid to a record on concern the economic malaise will worsen further due to expected higher tariffs once Donald Trump becomes US president. The declines came even after Beijing tried to bolster the currency with a stronger-than-expected daily reference rate.
“The yuan remains sluggish amid expectations for further rate cuts at home, while the economic recovery remains uneven,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. in Singapore. “Headlines over the past few days serve as a constant reminder that wider tariffs could soon hit when Trump comes on board officially in January.”
The yuan’s decline of almost 4 percent from its late September high threatens to undo China’s long-held ambition to maintain a stable, powerful currency. Traders are now closely watching whether the authorities will allow the daily fixing to be set weaker than the level of 7.2 per dollar, which has been seen as an important line in the sand.
The yuan has been the worst-performing Asian currency since the start of November, with much of the decline being triggered by Trump’s election victory.
“The PBOC will be very careful in managing how far the renminbi goes,” said Tai Hui, Asia Pacific chief market strategist at JPMorgan Asset Management in Hong Kong, using another name for the yuan. “From a domestic perspective, a rapidly depreciating RMB has always been seen as a risk to financial stability.”
Pressure on yuan has intensified in recent days as trade tensions have escalated. Trump on the weekend reiterated a threat to impose 100 percent tariffs on a group of emerging-market countries including China. The US then unveiled new restrictions on China’s access to vital components for chips and artificial intelligence on Monday.
To make matter worse, the yuan’s interest-rate discount to the US has been widening as traders added to bets on PBOC easing. China’s 10-year yield slid to a record 1.98 percent on Monday, more than 2 percentage points below similar-maturity US Treasuries.
The onshore yuan is also trading at the largest discount relative to the daily fixing since July, reflecting the bearish sentiment.
The majority of analysts are pessimistic. BNP Paribas SA, UBS Group AG and Societe Generale SA all predict the currency will weaken beyond last year’s low of 7.3510 some time during 2025.
“The risk is for the yuan to weaken further, driven primarily by a strong dollar on better US economic data,” said Wee Khoon Chong, a strategist at BNY in Hong Kong. “The market is fearing the uncertainties around Trump’s potential tariffs as soon as January.”
The yuan’s declines were tempered Tuesday as state banks increased their dollar sales when the onshore currency weakened toward 7.30, according to traders who asked not to be identified.
Chinese stocks also fell. The benchmark CSI 300 Index slipped as much as 0.6 percent, while the Hang Seng China Enterprises Index lost as much as 1.1 percent before erasing declines.
“Given the sentiment, it’s important for the 7.20 fix level to hold, as any fix set higher would trigger more immediate dollar buying,” said Khoon Goh, head of Asia Research at Australia & New Zealand Banking Group in Singapore. In addition to the daily reference rate, “the PBOC has several tools it can use to stem the depreciation pressure,” he said.
