As the U.S. election approaches, concerns grow over the potential implications for China, especially if Donald Trump secures a victory. Recently, China’s yuan has fallen to a two-month low as the dollar gained strength amid speculation surrounding the election.
This decline in the yuan reflects fears that a Trump presidency could lead to heightened trade tensions and a more aggressive stance on economic policies, further complicating China’s position in the global market.
Here’s a reframed and structured version of the information, complete with subheadings:
Yuan Weakens Amid U.S. Election Speculation
China’s yuan weakened to a two-month low against the dollar on Tuesday, influenced by expectations surrounding Donald Trump’s potential return to the White House.
The spot yuan opened at 7.1320 per dollar and dropped to a low of 7.1367 during morning trading, marking its weakest level since August 23. By the end of the day, the yuan was trading 79 pips lower than the previous session’s close at 7.1345.
Meanwhile, the dollar is nearing a three-month high, bolstered by a robust U.S. economy and rising speculation about Trump’s chances in the November 5 election. This has raised U.S. yields, as markets anticipate policies that could delay interest rate cuts.
Analysts from Maybank noted that the offshore yuan has been impacted by the increase in U.S. Treasury yields linked to the election, leading to a 1.6 percent decline in the yuan against the dollar this month as investors price in a potential Trump victory.
Anticipation of Stimulus Measures from China
Sentiment around the yuan has also been influenced by an upcoming significant Chinese leadership meeting, which may provide insights into potential stimulus measures. Eugene Leow, senior rates strategist at DBS, expressed optimism that China might implement more aggressive fiscal stimulus, with further details expected soon.
This optimism is reflected in the 10-year Chinese government bond yields, which are currently hovering above 2.1 percent, rising from nearly 2 percent at the end of September. Generally, higher yields in China would support the yuan.
Impact on Base Metals and Stimulus
Base metals remained stable on Tuesday as investors awaited a crucial meeting in China next week for details on stimulus measures and the outcome of the U.S. presidential election. Three-month copper on the London Metal Exchange (LME) fell 0.4 percent to $9,506 per metric ton, while December copper on the Shanghai Futures Exchange (SHFE) dropped 0.3 percent to 76,420 yuan ($10,704.43) a ton.
With the Chinese legislative body set to meet from November 4 to 8, the market focus is on potential debt measures. Traders express caution, anticipating that global demand remains sluggish amid ongoing overcapacity issues.
Written by – Siddesh S Raskar
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