A person holds Chinese yuan banknotes. — Reuters
SHANGHAI: China's yuan on Tuesday eased to a two-month low against the dollar, which is drawing support from bets of a possible return of Donald Trump to the White House and as markets await more details of stimulus steps from a top Chinese leadership meeting.
The spot yuan opened at 7.1320 per dollar and fell to a low of 7.1367 in morning trade, its weakest level since Aug. 23. The yuan was last trading 79 pips lower than the previous late session close at 7.1345 as of 0247 GMT.
The dollar is hovering near a 3-month high, underpinned by a sturdy U.S. economy. Bets on former president Trump winning the Nov. 5 election have also lifted U.S. yields as markets anticipate policies that could delay interest rate cuts.
The offshore yuan was dragged by the U.S. election-linked rise in U.S. treasury yields, said Maybank analysts. The yuan is down 1.6% against the dollar this month, as markets price in a potential election victory by Trump.
"Markets are increasingly of the view that both presidential candidates could be putting the U.S. fiscal (position) on a path of further deterioration amid spending promises that could require more debt issuance and higher term premium," said Maybank analysts.
Yuan sentiment has also been affected by an upcoming key Chinese leadership meeting that could reveal some stimulus details.
"There is some optimism that China would embark on more aggressive fiscal stimulus and that further measures/details could be forthcoming," said Eugene Leow, senior rates strategist at DBS.
Some of the optimism can be seen from the 10-year Chinese government bond yields hovering above 2.1%, up from close to 2% at the end of September, Leow said. Higher Chinese yields would be generally supportive for the yuan.
Market participants are also watching this Friday's non-farm payrolls for direction on the dollar. Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1283 per dollar.
The offshore yuan traded at 7.1473 yuan per dollar, down about 0.03% in Asian trade. The dollar's six-currency index stood flat at 104.26. - Reuters
