3 factors that pulled China's yuan to 4-month low against dollar despite impressive PMI numbers

Aiming to takeover US dollar and becoming world’s principal reserve currency, China’s yuan slipped to a four-month low raising concerns that the second largest economy might need additional policy support.

On Monday, yuan dropped to a low of 7.2675 per dollar, its weakest since July 24, despite a private manufacturing survey on Monday showing China’s factory activity expanded at the fastest pace in five months in November.

3 reasons why China’s yuan is falling

1 - Tariff threats on all Chinese goods in US

US President-elect Donald Trump, who takes office on January 20, last week announced that he would impose an additional 10 per cent tariff on all Chinese good coming into America.

He had already pledged that 60 per cent or higher tariffs on Chinese goods during his election campaign.

2 - Trump 100% tariffs threat to BRICS members

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In a bid to prevent dedollarisation, Trump, on Saturday (November 30), warned the members of BRICS group - Brazil, Russia, India, China and South Africa - of 100 per cent tariff if they create a new currency or support another to replace US dollars.

3 - China’s treasury yield fall to 22 years low

Another factor weighing on yuan was China’s 10-year treasury yield which fell below the psychologically key 2 per cent on Monday to its lowest in 22 years.

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A better than expected China’s factory activity, which expanded at the fastest pace in five months in November, failed to lift yuan.

The Caixin China General Manufacturing Purchasing Managers’ Index (PMI) rose 51.5 in November, up 1.2 points from 50.3 in the previous month, and highest since June,

Authorities in China have been battling a tough call of protecting yuan from falling sharply while striving to get the economy back on track.

As per a report by Reuters, prior to the market opening, the People’s Bank of China set the midpoint rate, around which yuan is allowed to trade in a 2 per cent band, at 7.1865 per dollar.

The spot yuan opened at 7.2450 per dollar and was last trading 170 pips lower than the previous late session close at 7.265 as of 0327 GMT and 1.09 per cent weaker than the midpoint.

The offshore yuan traded at 7.2756 yuan per dollar, down about 0.35 per cent in Asian trade.

With inputs from Reuters.