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 the dollar, which is drawing support from bets of a possible return of Donald Trump to the White House and as markets await more details of stimulus steps from a top Chinese leadership meeting.

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

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

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

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

"Markets are increasingly of the view that both presidential candidates could be putting the US fiscal (position) on a path of further 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 leadership meeting that could reveal some stimulus details.

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

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

Higher Chinese yields would be generally supportive for the yuan. 

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

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

The offshore yuan traded at 7.1473 yuan per dollar <CNH=>, down about 0.03 per cent in Asian trade.