HONG KONG/SHANGHAI: China’s yuan edged up against the dollar on the last trading day of 2024, but looked set for its third straight year of losses hit by a triple-whammy of a broadly stronger greenback, falling Chinese yields and rising trade tensions with other economies.
Expectations of a slower pace of rate cuts by the Federal Reserve next year supported Treasury yields and widened their premium over their Chinese counterparts, which have been falling rapidly in the past few months to record low levels in anticipation of fresh stimulus to aid the economy.
Widening yield differentials have fed demand for dollar-denominated assets and pressured the yuan, traders and analysts said.
As of 0318 GMT, the onshore yuan was 0.02% higher at 7.2982 to the dollar, but a whisker away from the psychologically important 7.3 mark, which was last visited in November 2023.
If it finishes the late night session at the midday level, it would have lost about 2.75% to the dollar for the year, recording the third consecutive yearly drop for a cumulative 13% slump in that period.
Its offshore counterpart at 7.3104 yuan per dollar around midday.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1884 per dollar, and 948 pips firmer than a Reuters’ estimate of 7.2832.
The PBOC’s midpoint rate has stayed on the firmer side of the key 7.2 level and stronger than market projections since mid-November, which traders and analysts widely interpret as a sign of rising unease over recent yuan declines.
Still, on the broader policy front, Reuters reported earlier this month that China’s top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they brace for higher US trade tariffs when Donald Trump returns to the White House.
China’s yuan slips to near 14-month low, poised for third straight yearly drop
Meanwhile, the Hong Kong dollar jumped to a three and a half year high against the greenback this week, as a surge in year-end funding demand sent the overnight borrowing rate to the highest level on record.
It last traded at 7.7640 per dollar around midday, and up 0.6% year-to-date.
The overnight Hong Kong interbank offered rate, known as Hibor and a gauge that measures the Hong Kong dollar’s liquidity conditions, remained elevated on Tuesday after jumping to 6.50357% a day earlier, the highest since the data was available in 2006.
Analysts said seasonal funding shortage and listed companies’ increasing dividend payments contributed to the tight liquidity.
State-owned Chinese companies were encouraged to increase dividend payouts this year and contributed to higher demand for the Hong Kong dollar, Ken Cheung, chief Asian FX strategist at Mizuho Bank.
“Especially banks need to replenish liquidity to meet regulatory requirements,” said Kimmy Tong, global market & FX strategist at Everbright Securities International.
“Additionally, state-owned companies listed in Hong Kong are increasing their dividends.”
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