The greenback reached its lowest since August versus the yen after a 7 percent rout in China’s equity markets curtailed trading for the second time in four days, and the yuan slid to its weakest since 2011. A precipitous lowering of the value of Chinese yuan – 0.51 percentage-point plunge compared to the previous day – played a big part in Thursday’s crash.
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Markets regained some stability after the offshore yuan erased early losses of up to 1 percent after suspected intervention by the authorities. It was the biggest fall between daily fixings since August and the eighth day in row for the PBOC to set a lower guidance rate. Top priority for the new deputy prime minister is stabilizing the won’s value and financial markets.
The PBOC’s China Foreign Exchange Trade System (CFETS) repeated on Thursday that there was no basis for the yuan’s continuous depreciation and that it was stable against a basket of currencies in 2015.
It was little changed at 94.19 Australian cents from 94.16 cents on Thursday and was lower at 61.07 euro cents from 61.35 cents.
“That’s the fear of the market”, said Sim Moh Siong, FX strategist for Bank of Singapore, adding that it was a zero sum game as other currencies weakened in response, and the end result would be greater volatility.
The New Zealand dollar fell to its lowest level against the yen in more than three months as investors favoured the safe haven Japanese currency amid concerns about a slowing Chinese economy and weak commodity prices.
The yen was last up 0.8 percent at 117.56 yen per dollar and up 1.7 percent against the Aussie at 82.37 yen.
Foreign investors have largely avoided China’s A shares that are traded on the Shanghai and Shenzhen stock exchanges and are quoted in yuan, and have preferred to invest in Chinese stocks through the H shares listed in Hong Kong, thus reducing the risk arising through yuan movement.
“Foreign exchange reserves have already fallen this much due to China’s purchases of yuan to support its own currency, so it could be hard to continue”, Aso said.
He said he bought shares on Wednesday when the market rebounded, but was now trapped by the circuit breaker, which he said was “killing investors” and creating panic. The dollar fell to 118.63 yen after dropping as low as 118.36 yen, its lowest level since mid-October, and down from 119.06 yen Tuesday in NY.
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So it’s clear Chinese officials feel they must do something about the yuan.
