BEIJING: China’s President Xi Jinping wants a “powerful currency” that is stable enough to play a rising role in global trade. Donald Trump’s return looks set to challenge that ambition.
The yuan risks years of downward pressure during the second Trump presidency, and the threat of another trade war is already fuelling bets against the currency.
Analysts expect the yuan to break a 17-year low against the dollar in 2025, with the most bearish observers predicting a decline of around 10%.
The yuan is more vulnerable than it was during the last trade war. Chinese government bond yields are well below those in the United States. Foreign companies are pulling back investments. Economic growth is patchy, and the spectre of deflation may drag interest rates even lower.
“The downward pressure is likely to intensify,” said Absolute Strategy Research emerging markets economist Adam Wolfe.
The People’s Bank of China (PBoC) “will likely continue to support the yuan for a while given its financial stability concerns about a bigger devaluation.
“But if a trade war does kick off, the PBoC might allow more depreciation to protect China’s exports and improve its negotiating position.”
That logic is encouraging traders to ramp up bets against the currency.
The onshore yuan traded at an intraday low of around 7.248 on Nov 14, its weakest level in three months, and options traders are betting on a further decline. The offshore rate was around 7.237 last Friday.
BNP Paribas SA expects the dollar-yuan to stabilise around 7.5 if Trump follows through on his pledge to impose 60% tariffs on Chinese goods, while UBS AG forecasts a rate of 7.60 to 7.70 in 2025 and Societe Generale SA expects 7.40 in the second quarter.
These forecasts all point to the onshore yuan breaching its low last year of 7.351, the weakest level since 2007. — Bloomberg
