The drop in the offshore yuan, where the currency is traded more freely, was the largest single-day percentage drop since February 2018, according to Stephen Innes, chief global market strategist for Axi.
The offshore yuan later pared losses as more votes were counted, and was last down just 0.3%, at about 6.7 yuan per US dollar. The more tightly controlled onshore yuan dropped 0.2% after falling more than 1% in Shanghai.
“Currency markets seem to be voting with their feet,” wrote analysts at Barclays. “When it seemed like the president was winning easily, currencies like the [yuan] and the [Mexican peso] sold off overnight. But both are now rallying early morning and …. the yuan has taken back most of its overnight losses.”
The Chinese currency could remain sensitive to the election results.
“In light of China-US tensions, the [renminbi] market movement hinges on the US election outcome,” said Ken Cheung, chief foreign exchange strategist for Asia at Mizuho Bank. He wrote in a research note Wednesday that should Trump secure reelection, that would suggest “the extension of America First agenda and protectionism policy.”
Another Trump term could inject new tension into US-China relations, which have been growing more bitter year by year. What started as a trade war has morphed into a broader conflict over technology and national security.
While some market analysts suspected that a Trump victory could bring with it an even more hawkish US stance toward China, economists have pointed out that any US president would take a robust approach with Beijing.
Terence Wu, a foreign exchange strategist at OCBC Bank in Singapore, said that the currency would likely be driven by factors other than the election, such as whether China’s economic recovery can remain on track.
“With the pandemic management still the main issue globally, trade frictions may be sidelined for now,” he said.
— Charles Riley contributed to this article.