SHANGHAI- China’s yuan slipped on Monday despite a broadly weaker dollar, dragged lower by worries over an escalating global trade war and fresh signs of economic wobbles.
Analysts say more proactive government policies would lend support to the yuan, noting that Beijing is not showing any unwillingness to use currency weakness as a way of countering the economic impact of higher US tariffs.
The onshore yuan was trading at roughly 7.25 per dollar around noon time, 0.2 percent weaker than the previous close.
The yuan’s weakness comes even as the dollar index slipped further following five straight sessions of declines amid growing worries that US President Donald Trump’s trade war could hit the US economy.
Chinese government bonds, meanwhile, fell in early trade on Monday, sending 10-year yields to three-month highs, after policymakers tempered market bets of further interest rate cuts over the near term.
The most actively traded 10-year benchmark bond yield rose briefly to 1.8 percent, its highest level since December 12. The benchmark note, which has risen more than 20 basis points this year, was last trading at 1.775 percent.
China’s treasury yields had already climbed during the country’s annual parliamentary meeting last week as traders reassessed what a “moderately loose” monetary policy means.
Yields rise when bond prices fall.
China’s monetary policy is generally accommodative as the country has repeatedly cut rates and the amount of reserves banks are required to hold in the past few years, Pan Gongsheng, governor of the People’s Bank of China (PBOC) said last week.
The PBOC will cut interest rates and the reserve requirement ratio “at an appropriate time” based on domestic and international economic and financial conditions, said Pan.
The remarks, hinting that monetary policy is already loose and further easing will be dependent on macroeconomic factors, quelled some investor expectations of imminent rate cuts.
“Pan’s interpretation of monetary policy helped correct market’s misunderstanding of the ‘moderately loose’ policy. Even if there are no rate cuts in 2025, the current monetary policy is already moderately loose,” said analysts at Kaiyuan Securities in a note.
Ten-year government bond futures for the June delivery fell 0.4 percent on Friday for their largest one-day decline since September 2024. They were last trading flat.
China’s bond yields, which have been falling for years, took a sharper turn down since December when China said it would adopt a “moderately loose” monetary policy, the first easing of its stance in 14 years.
Market participants had believed that “moderately loose” implied that rates will be cut more deeply this year than in 2024, analysts at Kaiyuan Securities said in a note.
Thirty-year government bond yields were up 2 basis points to 1.995 percent.
“We expect USD/CNY to stay largely range-bound over the next three months, with the key swing factor leaning towards the broad USD and fresh tariff news,” Goldman Sachs said in a report.
“The ongoing US trade probe, set to conclude by April 1, may trigger further tariff headlines, adding to FX uncertainty.”
In further signs of growing trade tensions, China on Saturday announced tariffs on over $2.6 billion worth of Canadian agricultural and food products, retaliating against levies Ottawa introduced in October.
Sentiment was also undermined by weekend data showing China’s consumer price index in February fell at the sharpest pace in 13 months, deepening worries about the economy following last week’s disappointing trade data.
