China’s currency weakened to a 16-month low following strong U.S. economic data overnight and as the potential for sharp tariff increases from the new Trump administration fuels concerns about the growth prospects of the world’s second largest economy.
The terrestrial renminbi fell 0.1% to RM7.34 against the dollar on Wednesday, its weakest since September 2023, despite the People’s Bank of China maintaining a stable fixing rate ahead of Donald Trump’s inauguration this month -this.
The Chinese currency is allowed to trade within 2 percent of the daily rate set by the central bank, and the exchange rate is approaching the lower limit of this trading range.
The selling pressure partly reflects concerns that high tariffs on Chinese goods proposed by Trump would force the PBoC to weaken the renminbi to offset their impact on exports, which has helped the country maintain economic growth in a context of weak domestic consumption demand.
Strong U.S. jobs and services figures on Tuesday also reinforced expectations that the Federal Reserve would cut rates more slowly than expected, unlike China, which is easing monetary policy to combat deflationary pressures.
“The market is impatient and wants a boom in the renminbi,” said Wee Khoon Chong, senior market strategist at BNY.
The PBoC has declared his determination maintain the “fundamental stability” of the renminbi and not allow “overshooting” of the exchange rate in the markets.
Beijing, grappling with growing deflationary pressures in the economy stemming from low consumer and investor confidence, has gradually opted for more stimulus measures to boost growth. On Wednesday, he expanded a program to subsidize consumers who trade in old appliances such as air conditioners and washing machines.
But many economists say the government is waiting to announce more spending plans while waiting for Trump’s inauguration on Jan. 20 to get more clarity on potential tariffs. The president-elect said he impose tariffs of up to 60 percent on China.
The PBoC announced a daily fixing rate of Rmb7.1887 against the dollar on Wednesday, virtually unchanged from Tuesday’s fixing rate of Rmb7.1879. But pressure on the exchange rate increased after strong U.S. economic data sent the dollar higher on Tuesday.
The selling pressure on the renminbi is “basically a reflection of Trump’s trading,” said Ju Wang, head of FX and rates strategy for Greater China at BNP Paribas. “The market has been doing this since the US election. . . we think a lot has been priced in, but the market doesn’t want to give up.
Wang said the PBoC appeared to be in “wait-and-see mode.”
The central bank wants to maintain a stable exchange rate while awaiting more clarity on Trump’s trade policy, analysts said, adding that any slight easing in the exchange rate could lead to a larger selloff in the Chinese currency.
In Hong Kong, offshore renminbi funding costs have risen in recent days, a sign that the PBoC is trying to defend the exchange rate against speculators.
Although the domestic renminbi cannot be traded outside the 2% band set by the PBoC, no such constraint exists for the offshore renminbi.
Chinese stocks also fell on Wednesday, with mainland China’s benchmark CSI 300 index losing 0.2 percent and Hong Kong’s benchmark Hang Seng index falling 0.9 percent.
