The Chinese renminbi should steadily weaken against the US dollar, and struggle against other currencies such as the Australian dollar, Japanese yen, and euro over the next few quarters.

In our judgement, the pricing-in and enacting-of US President-elect Trump’s trade policies will likely see a greater risk premium attached to the yuan, given the economic headwinds the protectionist measures may create for an already structurally-unbalanced Chinese economy, which has stumbled through its post-COVID recovery.

There’s a lot more to China’s exports than the US
Share of China’s goods exports, %
December 2013 – October 2024

Headwinds could increase as policymakers attempt to counteract tariff-related growth risks via a mix of monetary and fiscal stimulus measures, as they did during President Trump’s first term in office. A widening in yield disparities between China and other major economies could trigger capital flight and drag on the renminbi.

Authorities may continue to inject monetary and fiscal stimulus
Special local government bond issuance, cumulative, trillions CNY
2019 – 2024

More fundamentally, moves to reinvigorate activity through debt-driven infrastructure investment and construction may help mitigate short-term challenges, but will also amplify longer-term structural imbalances, encouraging investors to diversify out of the world’s second largest economy.