SHANGHAI: China’s yuan is set to end the week near a 13-month low against the dollar, as it trades in narrow ranges amid holidays, while investors watch 10-year yield differentials, near their lowest in 24 years, and prospects for US tariffs.
The yuan has hovered just below the critical level of 7.3 this week, with trading subdued during the holiday season, leading to fewer foreign exchange transactions as the end of the year approaches.
The spot yuan opened at 7.2951 per dollar and was trading 15 pips lower than the previous late session close at 7.299 by 0248 GMT, close to levels last seen in Nov. 2023.
“The yuan may be increasingly influenced by international factors unless robust policy support significantly boosts market confidence in the domestic economy,” analysts at Nanhua Futures said in a note.
“Only then can the internal fundamentals provide stronger support for the currency.”
One key uncertainty for the coming year is US President-elect Donald Trump’s tariff policy towards China, which many analysts fear could spur further yuan depreciation.
During Trump’s first term as president, the yuan weakened more than 12% against the dollar, sapped by a series of tit-for-tat tariff measures between March 2018 and May 2020.
China’s yuan nears 13-month low in holiday-thinned trading
In a note, Goldman Sachs analysts said the most significant fluctuations in the USD/CNY rate are expected to occur on announcement of tariffs, rather than in response to speculation, citing their observations from 2018 to 2019.
Chinese bond yields are hovering near record lows, with the 10-year government bond yield falling 1 basis point to 1.69% on Friday.
The gap between China’s benchmark 10-year treasury yield and the US 10-year yield is the widest in 24 years, prompting a chase for dollar-denominated assets and pressuring the yuan.
Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1893 per dollar, 1,088 pips firmer than a Reuters’ estimate.
Profits at China’s industrial firms fell 4.7% in the first 11 months from the corresponding period last year, official data showed on Friday.
The offshore yuan traded at 7.3053 yuan per dollar, down about 0.02% in Asian trade.
The dollar’s six-currency index was 0.056% higher at 108.14.
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