HONG KONG: The Chinese yuan fell to a fresh 19-month low against the US dollar today, following a record-low drop in its offshore counterpart overnight, as tensions from the escalating Sino-US trade war continue to weigh on investor sentiment.
In afternoon trading, the yuan weakened by 0.2%, hitting 7.3498 per US dollar, after briefly dipping to 7.3505 earlier, the lowest level since September 2023. Meanwhile, the offshore yuan pared some losses, rising 0.62% to 7.3812 per dollar after dropping over 1% in the previous session and reaching a record low of 7.4288 per dollar.
The declines come amid growing concerns as the trade war between the world’s two largest economies intensifies. These concerns were exacerbated by China’s central bank loosening its control over the yuan in an effort to mitigate the negative impact on exports.
US President Donald Trump’s “reciprocal” tariffs on numerous countries took effect today, including hefty duties of 104% on Chinese goods, even as the US prepares for further trade negotiations.
Carol Kong, a currency strategist at Commonwealth Bank of Australia, noted that the recent shift in the dollar was significant, influenced by the decision to proceed with additional tariffs on Chinese goods. She predicts the offshore yuan could fall to 7.7 per dollar by the end of Q3, though this could happen sooner if further tariff hikes are imposed by both countries.
To stabilise the market, China’s central bank set the onshore yuan’s midpoint rate at 7.2066 per dollar, the weakest since September 2023. The yuan is permitted to trade within a 2% band of this rate, with a lower limit of 7.3507, which is just above the September 2023 low.
Despite this, the central bank’s fixing was slightly firmer than expected, indicating a reluctance to allow the yuan to depreciate drastically. Chinese state-owned banks were observed selling dollars in the onshore market early this morning to slow the yuan’s decline.
Lei Zhu, head of Asian fixed income at Fidelity International in Hong Kong, commented that Chinese regulators are likely focused on stabilising the market, deeming this a priority over sending dramatic signals to the market.
Both the onshore and offshore yuan have fallen by more than 1% against the dollar this month, continuing the downward trend since the start of the year, largely due to concerns over the impact of the tariffs.
Economists noted that while a weaker yuan could make Chinese exports more competitive and ease pressure on the economy, a sharp decline could also lead to unwanted capital outflows, posing risks to financial stability.
