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SHANGHAI: China’s yuan slipped against the dollar on Thursday, as investor concerns over US President Donald Trump’s trade policy and pre-holiday greenback demand outweighed Beijing’s latest supportive measures to underpin the stock market.

China announced plans on Thursday to channel hundreds of billions of yuan annually into shares from state-owned insurers, in the authorities’ latest effort to support equity markets.

Currency traders said market attention remained focused on Trump’s tariff plans, with his administration discussing a 10% punitive duty on Chinese imports because fentanyl is being sent from China to the US via Mexico and Canada.

As of 0323 GMT, the onshore yuan was 0.04% lower at 7.2799 to the dollar, while its offshore counterpart traded at 7.2826.

“We see the yuan being an important shock absorber to increased tariffs and believe the authorities will eventually allow the yuan to adjust weaker,” analysts at ANZ said in a note.

“This could occur when more details of the additional tariffs are announced. A more flexible exchange rate is also important in order for the People’s Bank of China (PBOC) to ease monetary policy further in order to support the economy.”

They said even in the absence of trade tariffs, widening yield differentials between the United States and China are still likely to weigh on the yuan.

Yields on the benchmark 10-year US Treasury were 294 basis points above their Chinese counterparts for the same tenor on Thursday, after hitting a high of 314 basis points earlier this month, the widest level since data became available.

Yuan falls as Trump hints at new tariffs on Chinese imports

“The resilient US economy, as well as potential tariffs, are adding upward pressure on the dollar rates and weighing on the CNY exchange rates,” said Samuel Tse, economist and rates strategist at DBS.

“This will continue to constrain how far the PBOC can cut, given its priority of managing exchange rate stability.”

Prior to the market opening, the PBOC set the midpoint rate , around which the yuan is allowed to trade in a 2% band, at 7.1708 per dollar, and 1,118 pips firmer than a Reuters’ estimate of 7.2826.

The central bank has been setting its official midpoint guidance on the firmer side of market projections since mid-November, which analysts say is a sign of unease over the yuan’s decline.

Separately, currency traders said dollar demand was heavy as households converted yuan to foreign exchange in preparation for their overseas trips during the Lunar New Year holidays.

The week-long holiday will begin on Jan. 28 this year.

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