China's yuan falls to 2-month low as dollar gains on US election bets

China's yuan on Tuesday eased to a two-month low against dollar, which is drawing support from bets of a possible return of Donald Trump to White House and as markets await more details of stimulus steps from a top Chinese leership meeting.

spot yuan <CNY=CFXS> opened at 7.1320 per dollar and fell to a low of 7.1367 in morning tre, its weakest level since Aug. 23. yuan was last tring 79 pips lower than previous late session close at 7.1345 as of 0247 GMT.

dollar <.DXY> is hovering near a 3-month high, underpinned by a sturdy US economy. Bets on former president Trump winning Nov. 5 election have also lifted US yields as markets anticipate policies that could delay interest rate cuts.

offshore yuan <CNH=D3> was dragged by US election-linked rise in US treasury yields, said Maybank analysts. 

yuan is down 1.6 per cent against dollar this month, as markets price in a potential election victory by Trump.

"Markets are increasingly of view that both presidential candidates could be putting US fiscal (position) on a path of furr deterioration amid spending promises that could require more debt issuance and higher term premium," said Maybank analysts. 

Yuan sentiment has also been affected by an upcoming key Chinese leership meeting that could reveal some stimulus details.

"re is some optimism that China would embark on more aggressive fiscal stimulus and that furr measures/details could be forthcoming," said Eugene Leow, senior rates strategist at DBS.

Some of optimism can be seen from 10-year Chinese government bond yields <CN10YT=RR> hovering above 2.1 per cent, up from close to 2 per cent at end of September, Leow said. 

Higher Chinese yields would be generally supportive for yuan. 

Market participants are also watching this Friday's non-farm payrolls for direction on dollar. 

Prior to market opening, People's Bank of China (PBOC) set midpoint rate <CNY=PBOC>, around which yuan is allowed to tre in a 2 per cent band, at 7.1283 per dollar.

offshore yuan tred at 7.1473 yuan per dollar <CNH=>, down about 0.03 per cent in Asian tre.