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SHANGHAI/SINGAPORE - The yuan hit a 14-month low on the first trading day of the year while Chinese stocks and bond yields plunged, underscoring growing worries about China's economy and a looming trade war before Donald Trump begins his US presidency this month.
After sliding 2.8% against the greenback in 2024 in its third straight year of losses, the onshore yuan kicked off the new year on the back foot, briefly weakening below 7.3 per dollar for the first time since Nov. 3, 2023.
Meanwhile, China's stock benchmark tumbled nearly 3% on Thursday to the lowest level in more than two months, while long-dated Chinese yields slid to record lows.
China has implemented a raft of measures, including interest rate cuts and looser rules around home buying to revive an economy mired in a property crisis and persistent deflation, but investors await more detailed and forceful measures to be announced during the annual meeting of China's parliament in March.
"I think from beginning of the year to March is more uncertain because the next big policy event is March," Minyue Liu, investment specialist for Greater China equities at BNP Paribas Asset Management, said.
"Without solid macro data, macro delivery and big policy announcement in the first two months, the market is likely to be more volatile."
Thursday's market weakness came despite Chinese President Xi Jinping vowing to implement more proactive policies to promote growth in 2025, and as China's central bank kicked off a second round of swap facility operations to bolster the stock market.
TARIFF THREAT
The onshore yuan fell to 7.31 per dollar at the market open. However, trades for the dollar/yuan above 7.3 disappeared from trading platforms later.
Responding to a Reuters request for comment, China's forex market operator said both trading counterparties cancelled their orders at 7.31 per dollar. The regulator did not say why the orders were cancelled.
The cancellation shows that "authorities think keeping the yuan stronger than the 7.3-per-dollar level at this stage is reasonable", a trader at a Chinese bank said.
China needs to closely monitor US policies under Trump and adjust countermeasures accordingly, including yuan policies, said the trader, who declined to be named.
The US president-elect has threatened to impose fresh tariffs on Chinese imports, keeping investors on edge about the impact on yuan-denominated assets.
"It will be a challenging year for Asian currencies. Trump's inauguration is in less than three weeks," wrote Alvin Tan, head of Asia FX Strategy at RBC Capital Markets.
The pessimism was also reflected in China's stock and bond markets on Thursday.
China's blue-chip CSI 300 Index closed down 2.9%, logging its weakest New Year start since 2016, while Hong Kong benchmark the Hang Seng dropped 2.2%.
Financial and tech shares led the declines in China, falling 3.5% and 4.3%, respectively.
Chinese yields extended their decline into the new year, reflecting investors' gloomy outlook and adding to depreciation pressures on the yuan.
China's 30-year treasury yield fell below 1.9% to record lows on Thursday, while the price of treasury futures, which move inversely to yields, hit record highs.
"The bond market is the safe haven in a turbulent stock market," an investment manager at a Shanghai-based brokerage said.
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