China’s money has weakened to a 16-month low following powerful US economic data overnight and as the potential for sharp tariff increases from the incoming Trump administration fuels concern over growth prospects for the globe’s second-largest economy.
The onshore renminbi fell 0.1 per cent to Rmb7.33 against the dollar on Wednesday, its weakest since September 2023, in spite of the People’s financial institution of China’s maintenance of a steady fixing rate ahead of Donald Trump’s inauguration this month.
China’s money is allowed to trade within 2 per cent of the daily rate set by the central financial institution, and the trade rate is nearing the lower limit of that market activity band.
The selling pressure partly reflects fears that the steep tariffs on Chinese products proposed by Trump would force the PBoC to weaken the renminbi to offset their impact on exports, which have helped the country maintain financial expansion amid frail domestic customer demand.
powerful jobs and services data in the US on Tuesday also strengthened expectations the Federal savings would cut rates more slowly than previously expected, in contrast to China, which is easing financial regulation to battle deflationary pressures.
“The trade is impatient and wants a blow-up in the renminbi,” said Wee Khoon Chong, a elder markets strategist at BNY.
The PBoC has declared its determination to maintain the “basic stability” of the renminbi and not allow “overshooting” of the trade rate in markets.
Beijing, which is grappling with deepening deflationary pressures in the economy stemming from low household and investor confidence, has gradually pivoted towards more stimulus measures to boost growth. On Wednesday, it expanded a programme to subsidise consumers who trade in ancient appliances such as air conditioners and washing machines.
But many economists depend it is holding off on announcing more spending plans while it waits for Trump’s inauguration on January 20 to get more clarity on potential tariffs. The president-elect has said he would impose tariffs as high as 60 per cent on China.
The PBoC on Wednesday announced a daily fixing rate of Rmb7.1887 against the dollar, almost unchanged from Tuesday’s fixing of Rmb7.1879. But pressure on the trade rate mounted after the powerful US economic data drove up the dollar on Tuesday.
The selling pressure on the renminbi is “essentially a reflection of the Trump trade”, said Ju Wang, head of greater China foreign trade and rates way at BNP Paribas. “The trade’s been doing this since the US election . . . we feel a lot has been priced in, but the trade doesn’t desire to provide up.”
Wang said the PBoC appeared to be “in a wait-and-view mode”.
The PBoC “doesn’t really have any excellent options here”, said Julian Evans-Pritchard, head of China economics at fund Economics. “It will have to embrace some trade rate weakness as the least impoverished alternative. The question then becomes: where does the PBoC draw the line?”
The central financial institution wants to maintain a steady trade rate as it waits for more clarity on Trump’s trade policies, analysts said, adding that any slight easing of the fix could hazard a larger sell-off of China’s money.
In Hong Kong, capital costs for the offshore renminbi have risen in recent days in a sign the PBoC is trying to defend the trade rate against speculators.
While the onshore renminbi cannot be traded outside the 2 per cent band set by the PBoC, no such constraint exists for the offshore renminbi.
Chinese equities also fell on Wednesday, with mainland China’s CSI 300 index shedding 0.2 per cent and Hong Kong’s Hang Seng standard declining 0.9 per cent.
