Sources told Reuters that the move to devalue the yuan reflects a growing clamour within Chinese government circles for a devaluation of perhaps up to 10 percent to help struggling exporters.
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In the short-term, a cheaper yuan is a quick fix to boost Chinese exports, though analysts say that a steeper depreciation will be needed to really make an impact.
Markets fear that China’s move to devalue its currency could cause other countries to do the same, sparking a so-called “currency war” that could complicate the US Fed’s plans to increase interest rates.
BEIJING-China’s central bank is fully capable of stabilizing the yuan’s exchange rate and recent market fluctuations are controllable, Massachusetts Jun, the chief economist at the People’s Bank of China was cited as saying.
The bank had on Tuesday announced it would start setting the daily rate based partly on the previous day’s trading, bringing the yuan closer to a free-floating currency. The Indonesian rupiah gained 0.3% to trade at 13,744 against the U.S. dollar, rising as high as 13,825 rupiah.
The yuan fell 1.9% on Tuesday after a surprise change in exchange rate policy that Beijing said was aimed at making the tightly controlled currency more market-oriented.
The Nikkei benchmark index advanced 1.1% despite official figures showing Japan’s core machine orders, a key indicator of future growth in the manufacturing sector, tumbled 7.9% in June from the previous month.
The yuan lost ground again Thursday, extending the drop over the past three days to more than 3%, following a move earlier in the week by the People’s Bank of China to allow market forces more influence over the currency.
“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.
The Australian dollar has rebounded overnight after two days of steep falls sparked by Chinese currency devaluations.
The Australian dollar, which is often used as liquid proxy for China plays, held steady at $0.7382, having recovered from a six-year low of $0.7217 set on Wednesday.
The result: The yuan jumped about 1% in value against the dollar in the last few minutes of trading, bringing it to 6.3870 yuan against the dollar.
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Gold rose for the fifth consecutive day, rising to US$1,124.51 an ounce.
