In December, the first two trading days saw a depreciation of the Chinese yuan both onshore and offshore markets. On December 3rd, in early trading, the offshore yuan fell below 7.31 against the US dollar, while the onshore yuan dropped below 7.29, both hitting a new low for the year. The central parity rate reported 7.1996, marking a near 15-month low.
During early trading on the 3rd, the offshore yuan against the US dollar dropped below 7.31, hitting a low of 7.3148, a decrease of around 280 points during the day. The onshore yuan also fell below 7.29, touching 7.2996 at its lowest, a significant drop of 290 points from the previous day. Both the offshore and onshore yuan hit new lows not seen since November 2023.
The central parity rate set by the authorities on the 3rd reported 7.1996, a decrease of 131 points from the previous day and hitting a new low since September 2023. The central parity rate of the yuan is seen as a tool for the People’s Bank of China to intervene in the foreign exchange market, with the yuan’s exchange rate fluctuation limited within 2% above or below the central parity rate.
The day before, the yuan had already depreciated on both the onshore and offshore markets.
On the 2nd, the onshore yuan against the US dollar opened below 7.24 and further dropped below the 7.25 and 7.26 levels, reaching as low as 7.2675 during the day, a drop of nearly 200 points from the previous trading day and hitting a new low for the past four months since July 25.
In the offshore market, after breaking through the 7.27 level, the yuan dropped below 7.28 on the 2nd at 13:00, falling over 400 points during the day, marking a new low for almost four months.
Zhang Jingqin, Senior Emerging Market Strategist at Orient Huirui Bank, analyzed that despite the recent series of stimulus policies issued by the Chinese authorities to boost the economy, there has not been a significant lift in economic activity. Coupled with Trump’s possible return to power which could keep US interest rates high, it is expected that the US dollar will remain strong in the first half of next year, putting continued pressure on the yuan, possibly breaking through the 7.4 or even 7.5 levels. However, the final outcome will depend on the trend of the US dollar and the actual development of the trade war.
According to Glonhui, Khoon Goh, Head of the Asian Research Department at ANZ Bank Group, believes that due to concerns about tariffs, the yuan is weakening. Although the authorities currently maintain the central parity rate slightly above 7.20, this may not prevent the spot exchange rate from further depreciation.
Analysts predict that the yuan against the US dollar exchange rate will hit a 17-year low in 2025, with the most pessimistic observers forecasting a depreciation of around 10% for the yuan.