China’s currency, the renminbi, has dropped to its lowest level in 16 months, as concerns about potential tariff increases by the incoming Trump administration cast doubts on the growth prospects of the world’s second-largest economy.
On Wednesday, the onshore renminbi weakened by 0.1% against the U.S. dollar to Rmb7.34, its weakest level since September 2023. This decline occurred despite the People’s Bank of China maintaining its peg ahead of Donald Trump’s inauguration later this month.
The renminbi is allowed to trade within a 2% range of the daily rate set by the central bank, and the exchange rate is now nearing the lower boundary of this trading band.
The selling pressure on the currency reflects fears that a trade war with the U.S. could harm Chinese exports. Exports have been a critical factor in supporting China’s economic growth amid weak domestic consumer demand and a prolonged property crisis.
“The market is impatient and wants a pop in the renminbi,” said Wee Khoon Chong, senior market strategist at BNY.
On Wednesday, the People’s Bank of China set the daily fixing rate at Rmb7.1887 against the dollar, slightly adjusted from Tuesday’s Rmb7.1879. However, selling pressure on the exchange rate intensified following strong U.S. economic data, which boosted the dollar on Tuesday.
Ju Wang, Head of FX and Currency Strategy for Greater China at BNP Paribas, explained to Financial Times that the selling pressure on the renminbi is “essentially a reflection of the Trump trade.” Wang noted, “The market has been doing this since the U.S. election… A lot has been priced in, but the market doesn’t want to give up.”
Analysts observed that the central bank is attempting to maintain a stable exchange rate while awaiting clarity on Trump’s trade policies. They warned that a slight easing of the fixing could trigger a more significant sell-off in the Chinese currency.
Trump has vowed to impose a 60% tariff on China on his first day in office.
Adding to the concerns, Chinese stocks were sold off during the day. The CSI 300 index, China’s benchmark, and Hong Kong’s Hang Seng index both fell by 1.3%.
