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China’s currency has weakened to a 16-month low following strong US economic data overnight and as the potential for sharp tariff increases from the incoming Trump administration fuels concern over growth prospects for the world’s second-largest economy.
The onshore renminbi fell 0.1 per cent to Rmb7.33 against the dollar on Wednesday, its weakest since September 2023, in spite of the People’s Bank of China’s maintenance of a steady fixing rate ahead of Donald Trump’s inauguration on January 20.
China’s currency is allowed to trade within 2 per cent of the daily rate set by the central bank, and the exchange rate is nearing the lower limit of that trading band.
The selling pressure partly reflects fears that the steep tariffs on Chinese products proposed by Trump would force the PBoC to weaken the renminbi to offset their impact on exports, which have helped the country maintain economic growth amid weak domestic consumer demand.
Strong jobs and services data in the US on Tuesday also strengthened expectations the Federal Reserve would cut rates more slowly than previously expected, in contrast to China, which is easing monetary policy to battle deflationary pressures. The US dollar index has rallied 0.5 per cent since Tuesday’s data.
“The market is impatient and wants a blow-up in the renminbi,” said Wee Khoon Chong, a senior markets strategist at BNY.
The PBoC has declared its determination to maintain the “basic stability” of the renminbi and not allow “overshooting” of the exchange rate in markets.
Beijing, which is grappling with deepening deflationary pressures in the economy stemming from low household and investor confidence, has gradually pivoted towards more stimulus measures to boost growth. On Wednesday, it expanded a programme to subsidise consumers who trade in old appliances such as air conditioners and washing machines.
But many economists believe it is holding off on announcing more spending plans while it awaits Trump’s inauguration to get more clarity on potential tariffs. The president-elect has said he would impose tariffs as high as 60 per cent on China.
The PBoC on Wednesday announced a daily fixing rate of Rmb7.1887 against the dollar, almost unchanged from Tuesday’s fixing of Rmb7.1879. But pressure on the exchange rate mounted after the strong US economic data drove up the dollar on Tuesday.
The selling pressure on the renminbi is “essentially a reflection of the Trump trade”, said Ju Wang, head of greater China foreign exchange and rates strategy at BNP Paribas. “The market’s been doing this since the US election . . . we feel a lot has been priced in, but the market doesn’t want to give up.”
Wang said the PBoC appeared to be “in a wait-and-see mode”.
The PBoC “doesn’t really have any good options here”, said Julian Evans-Pritchard, head of China economics at Capital Economics. “It will have to embrace some exchange rate weakness as the least bad option. The question then becomes: where does the PBoC draw the line?”
Analysts note that although the renminbi is under selling pressure against the dollar, it has strengthened relative to other currencies. “It’s not just a China story. It’s a story of US dollar strength,” said Evans-Pritchard.
The Thai baht, Indonesian rupiah, Philippine peso, Taiwan dollar, Korean won all weakened 0.4 per cent against the dollar on Wednesday.
The central bank wants to maintain a steady exchange rate as it waits for more clarity on Trump’s trade policies, analysts said.
In Hong Kong, funding costs for the offshore renminbi have risen in recent days in a sign the PBoC is trying to defend the exchange rate against speculators.
While the onshore renminbi cannot be traded outside the 2 per cent band set by the PBoC, no such constraint exists for the offshore renminbi.
Chinese equities also fell on Wednesday, with mainland China’s CSI 300 index shedding 0.2 per cent and Hong Kong’s Hang Seng benchmark declining 0.9 per cent.
