The yuan dropped for the third straight day on Tuesday as the U.S. dollar strengthened amid the ongoing U.S. presidential election, but analysts said the election results will not have a major or sustained impact on the yuan's exchange rate.
They also said the dollar's strength might not continue for long, since a weak dollar will better serve U.S. interests, helping it to boost jobs and reduce debt burdens.
The yuan's central parity rate, set by People's Bank of China, the central bank, fell by 92 base points to 6.78 against the dollar on Tuesday.
"The rising dollar is a major contributor to the weakening yuan in the short term," said Liu Dongliang, senior analyst at China Merchants Securities.
The dollar was strong ahead of the U.S. presidential election outcome, as various polls pointed to a strong chance of Democratic nominee Hillary Clinton winning. The victor was expected to be known by Wednesday morning Beijing time.
The U.S. dollar index rose by 3.12 percent in October alone, thanks to an expected interest rate increase by the U.S. Federal Reserve and risk-averse investors buying dollars in the financial markets.
In October, the yuan dropped by 1.28 percent against the dollar.
In the middle and long term, however, the yuan's rate will move in accordance with changes in China's economic and financial fundamentals and will not have much to do with the U.S. election results, analysts said.
Despite criticism of China by the two U.S. nominees for president, the two countries' economic relations, especially trade relations, will not be fundamentally changed, Zhang Huanbo, an economist with the China Center for International Economic Exchanges, was quoted by People's Daily as saying.
Additionally, trade and investment liberalization is set to become a global trend, which also serves U.S. interests, Zhang added.
In the middle and long term, the exchange rate of the yuan will mainly hinge on China's economic and financial stability, said Sun Lijian, an economist at Fudan University in Shanghai.
"Fluctuations in the international financial markets will frequently have a short-term impact on the yuan's rate, but whether the Chinese economy can recover and fare well and whether it can maintain a stable financial environment while pushing financial liberalization reform will decide the long-term trend of the yuan," he said.
Sun said that if the U.S. economy continues to recover in the first half of 2017, its quantitative easing policy might be withdrawn, and policymakers may opt to choose a weak dollar stance to help boost the job market and cut debts.
