China’s yuan slides to 4-month low on tariff threats and mixed PMI data

SHANGHAI (Reuters) – The yuan fell to a four-month low on Monday, as tariff threats and mixed purchasing managers’ index (PMI) data raised concern China’s economy might need additional policy support.

The onshore yuan dropped to a low of 7.2675 per dollar, its weakest since July 24, despite a private manufacturing survey on Monday showing China’s factory activity expanded at the fastest pace in five months in November.

The upbeat Caixin/S&P Global survey data followed a modest improvement in the official manufacturing PMI, but a worse-than-expected non-manufacturing PMI, which includes construction and services, over the weekend.

The mixed messages from the official PMI suggested the need for further policy support, leaving the yuan in a challenging position given continuing U.S. tariff risks, said Paul Mackel, Global Head of FX Research at HSBC.

U.S. President-elect Donald Trump on Saturday demanded that BRICS member countries commit to not creating a new currency or supporting another currency to replace the United States dollar or face 100% tariffs.

Trump, who takes office on Jan. 20, said last week he would impose an additional 10% tariff on Chinese goods. He had threatened tariffs in excess of 60% while on the campaign trail.

Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1865 per dollar, 519 pips firmer than a Reuters’ estimate.

The spot yuan opened at 7.2450 per dollar and was last trading 170 pips lower than the previous late session close at 7.265 as of 0327 GMT and 1.09% weaker than the midpoint.

The offshore yuan traded at 7.2756 yuan per dollar, down about 0.35% in Asian trade.

China’s 10-year treasury yield fell below the psychologically key 2% on Monday to its lowest in 22 years.

Citi analysts said in a note that downside risk for the USD/CNH was limited given the lack of a near-term catalyst. They said the next window for a major fiscal policy headline was during mid-December’s Central Economic Work Conference and that any fiscal stimulus was likely to be conservative.

The dollar’s six-currency index was 0.245% higher at 106.3.

LEVELS AT 0327 GMT

INSTRUMENT CURRENT UP/DOWN( % DAY’S DAY’S

vs USD -) VS. CHANGE HIGH   LOW

PREVIOUS YR-TO-

CLOSE % DATE

Spot yuan 7.265  -0.31 -2.26 7.245 7.267

Offshore 7.2759  -0.35 -2.06 7.251 7.277

yuan spot 5 5