China’s currency hits 16-month low on Trump tariff fears

China’s currency has weakened to a 16-month low as the potential for sharp tariff increases from the incoming Trump administration fuels concern over growth prospects for the world’s second-largest economy.

The onshore renminbi weakened 0.1 per cent to Rmb7.34 against the dollar on Wednesday, its weakest since September 2023, in spite of the People’s Bank of China maintaining a steady fixing rate ahead of Donald Trump’s inauguration this month.

China’s currency is allowed to trade within 2 per cent of the daily rate set by the central bank, and the exchange rate is nearing the lower limit of that trading band.

The selling pressure on the renminbi partly reflects fears that a trade war with the US will curb Chinese exports, which have helped to maintain the country’s rates of economic growth amid weak domestic consumer demand and a long-running property crisis.

“The market is impatient and wants a blow-up in the renminbi,” said Wee Khoon Chong, a senior markets strategist at BNY.

On Wednesday, the PBoC announced a daily fixing rate of Rmb7.1887 against the dollar, almost unchanged from Tuesday’s fixing of Rmb7.1879. But pressure on the exchange rate mounted after strong US economic data drove up the dollar on Tuesday.

The selling pressure on the renminbi is “essentially a reflection of the Trump trade”, said Ju Wang, head of greater China foreign exchange and rates strategy at BNP Paribas. “The market’s been doing this since the US election . . . we feel a lot has been priced in, but the market doesn’t want to give up.”

The central bank wants to maintain a steady exchange rate as it waits for more clarity on Trump’s trade policies, analysts said, adding that any slight easing of the fix could risk a larger sell-off of the Chinese currency.

Trump has said he would impose 60 per cent tariffs on China

Chinese equities also sold off for the day. China’s benchmark CSI 300 index and Hong Kong’s Hang Seng index both shed 1.3 per cent.