Key Points
- The offshore yuan (USD/CNH) fell past 7.28 per dollar, with the USD/CNH hitting 7.28642.
- Trump announced 25% tariffs on autos, semiconductors, and pharmaceuticals, fuelling trade war fears.
- Geopolitical concerns grew after Trump Jr. suggested the US should prepare for potential military challenges from China.
- China’s home prices dropped 5% y/y in January, marking the smallest decline since July 2024.
The offshore yuan weakened past 7.28 per dollar, extending its losses for the third consecutive session as US-China trade tensions escalated. Market sentiment deteriorated following Donald Trump’s announcement of 25% tariffs on key Chinese exports, reinforcing expectations of retaliatory measures from Beijing.
Geopolitical Tensions Weigh on Market Sentiment
Risk-off sentiment intensified after Donald Trump Jr. stated that the US should prepare for potential military challenges from China while maintaining diplomatic engagement. His remarks added another layer of geopolitical risk, further weakening market confidence.
Traders have historically shifted to safe-haven assets during periods of heightened US-China tensions, with increased flows into the US dollar, gold, and Treasuries. If tensions continue to escalate, emerging market currencies, particularly the yuan and other Asian currencies, could see further declines.
Technical Analysis
Picture: USD/CNH extends gains to 7.2845, with resistance at 7.2864 and support at 7.2619, as seen on the VT Markets app.
USD/CNH edges higher, closing at 7.2845 after opening at 7.2735. The session saw a high of 7.2864 and a low of 7.2731, with the pair extending its upside momentum as traders assess US-China economic dynamics.
The moving averages (MA 5, 10, 30) indicate bullish momentum, with short-term MAs maintaining an upward slope above the longer-term trend. MACD (12, 26, 9) confirms this strength, with the histogram reflecting a recent bullish crossover, though a slight slowdown in momentum suggests a potential pullback or consolidation.
China’s Property Market Shows Signs of Stabilisation
Despite trade war concerns, China’s latest property data showed a slower pace of decline. New home prices fell 5% y/y in January, improving from December’s 5.3% drop. This marked the smallest decline since July 2024, suggesting that Beijing’s stimulus efforts, such as lower mortgage rates and funding for developers, may be starting to stabilise the sector.
However, structural weaknesses remain, with high developer debt and weak demand still limiting recovery prospects. Further policy measures may be needed to sustain momentum in the property sector.
Market Outlook
The offshore yuan remains vulnerable, with further depreciation likely if trade tensions escalate. USD/CNH could test 7.30, especially if China retaliates against US tariffs.
China’s property sector shows tentative signs of stabilisation, but a full recovery remains uncertain. Market participants are closely watching Beijing’s response to US trade policies, as any countermeasures could fuel another wave of market volatility across forex, commodities, and equities.
