The drop in the offshore yuan, where the currency is traded more freely, is the largest single-day percentage drop since February 2018, according to Stephen Innes, chief global market strategist for Axi.
The offshore yuan eventually pared losses, and was last down 0.7%, or about 6.7 yuan per US dollar. The more tightly controlled onshore yuan slumped 0.6% after falling more than 1% in Shanghai.
“In light of China-US tensions, the [renminbi] market movement hinges on the US election outcome,” according to Ken Cheung, chief foreign exchange strategist for Asia at Mizuho Bank. He wrote in a research note Wednesday that should Trump secure reelection, that would suggest “the extension of America First agenda and protectionism policy.”
But another Trump term could inject new tension into US-China relations, which have been growing more bitter year by year. What started as a trade war has morphed into a broader conflict over technology and national security.
While some market analysts suspected that a Trump victory could bring with it an even more hawkish US stance toward China, economists have pointed out that any US president would take a robust approach with Beijing.
Others also said that a Trump win doesn’t necessarily mean that the yuan will continue losing value in the long term.
Terence Wu, a foreign exchange strategist at OCBC Bank in Singapore, said that the currency would likely be driven by other factors, such as whether China’s economic recovery can remain on track.
“With the pandemic management still the main issue globally, trade frictions may be sidelined for now,” he said.
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