China’s yuan drops for a third day

Chinese currency the yuan halted a three-day slide after the central bank soothed market sentiments on Thursday, reversing short but sharp declines triggered by a foreign exchange (forex) policy change.


On Tuesday, China devalued the currency by the most in two decades to cushion its exports. One was an official of the Peoples Bank of China, the central bank, and the other was with the assistant administrator of SAFE, the State Administration of Foreign Exchange.

China roiled the global financial markets Wednesday when it reduced its currency’s value for the second consecutive day, fueling speculations the yuan could depreciate further.

WALL STREET: Major U.S. benchmarks finished flat with the Dow Jones industrial average down less than a point to close at 17,402.51.

The dollar dipped against the yen and euro on Friday after getting a lift from a solid US retail sales report that boosted expectations for a Federal Reserve rate hike as early as next month.

Chinese banks were also rumoured to be supporting the yuan by buying up the currency and selling dollars.

The yuan is still only allowed to fluctuate up or down 2% on either side of the reference rate.

Experts say the PBoC acted to prevent the Yuan from falling too rapidly, a effect that was widely flagged when the PBoC first announced a more market-oriented Yuan just 24 hours earlier.

The PBOC also said that it would monitor “abnormal” cross-border flows after the devaluation raised fears that investors would seek to pull capital out of China in anticipation of further falls in the currency.

The offshore yuan was trading 1.02% weaker than the onshore spot at 6.4764 per dollar.

Furthermore, the Chinese leadership is still reeling from the fallout of the stock-market crash.

The currency’s fall comes after the PBOC adjusted the exchange rate formation mechanism on Tuesday, a move designed to better reflect market development in the exchange rate of the yuan against the U.S. dollar.

“This is like a double whammy with China allowing its currency to weaken”, said Wee-Ming Ting, the head of Asian fixed income in Singapore at Pictet Asset Management, which oversees $US19 billion of emerging-market debt. Rumours that Beijing was seeking a 10 per cent devaluation of the yuan were described as “sheer nonsense” and “totally unfounded” by deputy governor Yi Gang.


Recent economic data had seen a decline in Chinese exports, adding to the worries that the world’s second largest economy was headed for a prolonged slowdown.

China devalued the yuan by 1.9 percent the most in two decades after data this month showed a plunge in exports weaker-than-estimated manufacturing and a slowdown credit growth