China's yuan falls to near 3-month low on weaker fixing, tariff worries
SHANGHAI, Nov 7 (Reuters) -China's yuan fell to a near three-month low against the dollar on Thursday, dragged lower by a much weakened official guidance and market worries about higher tariffs on Chinese goods following Donald Trump's win in the U.S. presidential election.
As part of his pitch to boost American manufacturing during the election campaign, Trump said he will impose tariffs of 60% or more on goods from China. Trump's proposed tariff and tax policies are seen as inflationary and therefore likely to keep U.S. interest rates high and undermine currencies of trading partners.
During Trump's first presidency, the yuan weakened about 5% against the dollar during the initial round of U.S. tariffs on Chinese goods in 2018, and fell another 1.5% a year later when trade tensions escalated.
"We don't think China policymakers would react to generalized pre-election candidate talk about tariffs before they actually materialize," Citi analysts said in a note.
"Under a potential 60% tariff, if the yuan exchange rate follows the path in the last round, it could go to 7.7-8.0. The People's Bank of China (PBOC) may eventually allow the yuan exchange rate to adjust in this case, but still manage the timing and the pace."
They also expect the central bank to defend the currency at an early juncture to anchor market expectations and show Beijing will take active steps to manage bilateral trade imbalances.
China's major state-owned banks were selling dollars to prevent the yuan from weakening too fast, sources told Reuters on Wednesday.
As of 0236 GMT, the onshore yuan CNY=CFXS was 0.04% lower at 7.1827 to the dollar after hitting a trough of 7.1950 per dollar, the weakest since Aug. 15, which was not too far from the psychologically important 7.20 per dollar level.
Prior to the market opening, the PBOC set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1659 per dollar, its weakest since Nov. 17, 2023, and 20 pips firmer than a Reuters' estimate CNY=RTRS of 7.1679.
"Today's PBOC fixing doesn't suggest that authorities are overly concerned on FX yet given the historical fixings during bouts of USD strength," said Alex Loo, macro strategist at TD Securities.
He referred to the central bank's persistently firmer-than-expected midpoint seen late last year and early this year to stabilise the yuan.
"As the National People's Congress (NPC) is still ongoing, we expect PBOC to cap any abrupt move higher in USD/CNY through state banks' USD selling in the interim," Loo added.
Sources told Reuters last week that Beijing may announce a stronger fiscal package if Trump wins a second presidency as his return to the White House is expected intensify the economic headwinds for China.
Reporting by Shanghai Newsroom; Editing by Christian Schmollinger
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