China yuan depreciation: Yuan slides on report China considering weaker unit

Beijing: China’s yuan slid the most in a week following a report that Beijing is considering allowing the currency to weaken next year in response to the threat of a trade war with the US. The offshore yuan dropped as much as 0.5% to 7.2921 per dollar after Reuters reported that policymakers are mulling letting the currency depreciate, possibly to around 7.5 per dollar. It later trimmed declines.

The move triggered drops in regional peers, with the New Zealand dollar falling to the weakest in more than two years, while the Australian dollar hit levels last seen in November last year.

Pressure on the yuan has intensified since the re-election of Donald Trump, who has threatened to impose tariffs on China and other countries. Some investors have speculated Beijing will abandon its current policy of maintaining a stable currency to compensate for any impact this could have on its economy.

“There is a compelling logic embedded in these comments,” said Jane Foley, head of FX strategy at Rabobank in London. “China’s economy is already weak, inflation is low, and it will have to position itself for Trump tariffs.”

But devaluing the yuan can carry huge costs. A rapid depreciation could lead to aggressive capital outflows, triggering even more currency declines. The downward spiral tends to dent appetite for China stocks and bonds, risks destabilising financial markets and hurting growth.

The world’s second-largest economy is already challenged by a prolonged property crisis and souring consumer sentiment. To rejuvenate growth, China earlier this week signaled bolder economic support next year, embracing a “moderately loose” monetary policy and pledging “more proactive” fiscal policy.