SHANGHAI: China's yuan extended losses against the dollar on Friday, after posting its first monthly drop in four in October, as investors remained anxious ahead of the U.S. presidential election next week and its impact on Sino-U.S. trade and economic policy.
But losses in the Chinese currency were somewhat limited by signs of economic improvements seen in recent housing and manufacturing data. As of 0314 GMT, the onshore yuan was 0.09 per cent lower at 7.1243 to the dollar.
It weakened 1.4 per cent against the greenback in October to post the first monthly drop since June and is now down 0.3 per cent year-to-date. Its offshore counterpart traded at 7.1326 per dollar.
The turnaround in the yuan's movements come as investors have been buying the dollar and selling emerging market currencies, mainly the yuan, in the run-up to the U.S. election next Tuesday in readiness for Republican candidate Donald Trump's possible return to the presidency.
Opinion polls show former President Trump is running neck and neck with Vice President Kamala Harris and the race is too close to call. As part of his pitch to boost American manufacturing, Trump has promised voters he will impose tariffs of 60 per cent or more on goods from China.
Trump's proposed tariff and tax policies are seen as inflationary and therefore likely to keep U.S. interest rates high and undermine currencies of trading partners.
During Trump's first presidency, the yuan weakened about 5 per cent against the dollar during the initial round of U.S. tariffs on Chinese goods in 2018, and fell another 1.5 per cent a year later when trade tensions escalated.
But the yuan's losses were capped in morning deals after private and official surveys both showed China's manufacturing activity swung back to growth in October as an expansion in new orders led to a pickup in production growth.
Prices of new homes in China also rose at a faster pace in October, traditionally a peak season for house-hunting, a private survey showed on Friday.
"The economy has accelerated on policy supports, allowing policymakers to achieve this year's growth target of 'around 5 per cent,'" said Larry Hu, chief China economist at Macquarie.
"As such, the National People's Congress (NPC) meeting may focus on debt swap rather than new stimulus ... The next step of the stimulus will largely be determined by the state of external demand, and the outcome of the U.S. election is a key swing factor."
China's top legislative body will meet from Nov. 4-8, with markets widely expecting the meeting to approve more fiscal stimulus measures.
Sources told Reuters this week that China is considering approving next week the issuance of more than 10 trillion yuan (US$1.40 trillion) in extra debt in the next few years to revive its fragile economy, a fiscal package that is expected to be further bolstered if Trump wins the U.S. election.
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 per cent band, at 7.1135 per dollar, and 13 pips weaker than a Reuters' estimate of 7.1122.
Separately, currency traders said they will monitor U.S. job data due later on Friday for more clues on the health of the world's largest economy, given it could affect Federal Reserve's monetary easing trajectory.