Chinese Currency Plunges to 16-Month Low Amid Trade War Tensions!

Amidst uncertainty and anticipation of potential sharp tariff increases from the approaching Trump administration, China’s currency has weakened to a 16-month low. The onshore renminbi faltered by 0.1 per cent to Rmb7.34 against the dollar on Wednesday, hitting its lowest level since September 2023. Despite the People’s Bank of China keeping a steady fixing rate, selling pressure on the renminbi persists.

1. Market Impatience: China’s currency is subject to trading within 2 per cent of the daily rate set by the central bank, edging closer to the lower threshold of that trading band. "The market is impatient and wants a blow-up in the renminbi," remarked Wee Khoon Chong, senior markets strategist at BNY.
2. Ongoing Pressure: The PBoC announced a daily fixing rate of Rmb7.1887 against the dollar on Wednesday, nearly unchanged from the previous day. However, robust US economic data on Tuesday led to an increase in the dollar, mounting pressure on the renminbi’s exchange rate.
3. Trump Factor: Ju Wang, head of greater China foreign exchange and rates strategy at BNP Paribas, attributed the selling pressure on the renminbi to the "Trump trade." Wang highlighted the continuous fluctuations since the US election, indicating that while much has already been factored in, the market remains resistant.

Analysts suggest that the central bank aims to uphold a stable exchange rate while awaiting more clarity on Trump’s trade policies. Any slight adjustment to the fixing rate could trigger a significant sell-off of the Chinese currency. President Trump has been vocal about imposing substantial tariffs on China, with promises of a 60 per cent tariff on his first day in office.

In this volatile financial landscape, with geopolitical tensions and policy uncertainties dominating the market sentiment, the weakening of China’s currency becomes an emblem of the global economic intricacies at play. As investors brace for potential upheavals, the resilience of the renminbi against external pressures remains a key focal point, awaiting the unfolding of a new chapter in international trade dynamics.