China’s renminbi goes up against Wall Street bets

Trump’s re-election has significantly impacted China’s currency. Trump’s threat of tariffs and China’s weak economy has led Wall Street to increase its bets against the renminbi. However, this is to be supported by China’s largest sale of offshore bills.

Today, the People’s Bank of China announced that it would sell Rmb60B($8.2B) of bills in Hong Kong in January. It will mark the largest single sale since auctions were introduced in the territory in 2018.

Obviously, the bill sale will result in the renminbi liquidity being absorbed, thereby increasing the cost for traders to wager against the currency in markets outside of China.

In the initial trading days of 2025, the renminbi has declined to over Rmb7.33 per dollar, its lowest level since September 2023. This development presents a challenge to the Chinese government, which has pledged to preserve the currency’s stability.

Notably, The renminbi is not subject to the trading band and is freely transacted outside of mainland China. Unofficial guidance and discreet interventions have been implemented by China’s central bank to regulate depreciation in offshore markets.

What are China’s odds of winning against Wall Street bets?

Investors are of the opinion that the central bank will permit the gradual weakening of the currency. The renminbi is expected to reach Rmb7.5 per dollar or higher by the end of the year. This is a level that was last observed in 2007.

However, Ju Wang, head of China rates and foreign exchange strategy at BNP Paribas said that with the announcement of the bill sale, “they are sending a sign that even with the tariff situation, they are trying their best to protect the currency.” 

Apparently, China has an estimated $1 trillion in unofficial support from state institutions and exporters. This support, in addition to $3.2 trillion in official reserves, could safeguard the currency if it reaches that threshold.

Still, the PBoC has maintained its currency fix. This is an official daily exchange rate that allows the renminbi to fluctuate by 2% in mainland China. However, the renminbi has depreciated over the past month, remaining at approximately Rmb7.19 per dollar.

A hedge fund manager said that recent moves in the currency “are all indicative of a trade with legs and a direction in policy where the authorities are pretty comfortable with a slow, managed weakening versus the dollar and some sense of stability versus a broader basket of currencies.”

The overnight rate to borrow offshore renminbi in Hong Kong soared above 8% on Tuesday, the highest level in three years. This makes it more expensive for investors who bet against the currency.

Short-term predictions for China’s renminbi  

JPMorgan, Barclays, and BNP Paribas all anticipate that the renminbi will decline to Rmb7.5 per dollar by the conclusion of 2025. Nomura predicts that it will reach Rmb7.6 by May, while Bank of America predicts that it will reach Rmb7.4 by the end of the year.

Some predict that it may diminish beyond Rmb7.5. Robert Gilhooly, senior emerging markets economist at Abrdn, stated, “Our working assumption is that the currency falls to between Rmb8 and Rmb8.1 by the middle of [2025], conditioned on this relatively large tariff shock.”

He added that during the previous cycle of Trump tariffs in 2017, the risks were skewed toward a greater depreciation this time around.

Additionally, The renminbi’s devaluation would enable Chinese exporters to maintain their competitiveness in the face of increased tariffs in the United States. However, it could also expose China to the allegation of currency manipulation, which was leveled by the previous Trump administration.

Also, most investors expect the most significant weakness to occur after the new Trump administration’s tariff intentions are more widely known. Trump is scheduled to be inaugurated on January 20.

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