The devaluation sparked fears of a global “currency war” and accusations that Beijing was unfairly supporting its exporters, but the central bank on Wednesday sought to reassure financial markets that it was not embarking on a steady depreciation. They say the decision is also in line with Beijing’s bid to make its yuan one of the reserve currencies in the worldwide Monetary Fund. Under the new rules, Vietnam’s currency, the dong, can be traded within two percent above or below the daily reference point.
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But benchmark 10-year note prices fell from three-month highs after a lackluster auction, with the 10-year yield at 2.162 percent in Asian trading, compared to its U.S. close of 2.130 percent.
PBoC economist Massachusetts Jun on Wednesday said China could stabilize the yuan through direct market intervention.
While the renminbi devaluation represents a policy move by the government, it should also be seen as a reflection of the natural response of the exchange rate to economic weakness. China cut the rate around which its currency can trade by about 4.4 per cent this week.
The central bank said under a managed floating exchange rate system, the value of the yuan is determined by the market, and the bank can not intervene with this, but focuses more on improving the exchange rate formation mechanism. The yuan stabilised as China’s central bank strengthened its currency’s reference rate for the first time since Tuesday’s devaluation.
On Thursday, the breakeven rate on 10-year U.S. Treasury inflation-protected bonds, essentially a measure of where investors expect inflation to be over the next decade, fell to 1.59 percent, the lowest since January.
China determines a midpoint level for the value of the yuan. As emerging market currencies slide, exporting “waves of deflation to the West”, said Albert Edwards of Societe Generale, they will overwhelm lacklustre developed world profitability, taking us back to “outright recession”. In offshore trading, the yuan had fallen even more dramatically in previous days, to trade at a discount of more than 2 percent to the onshore rate, but gained ground against the dollar on Thursday to narrow that discount.
RETAILERS JUMP: J.C. Penney rose 63 cents, or 7.8 percent, to $8.70 after reporting a narrower loss in its second quarter on stronger-than-expected sales as the department store chain continues to turn its business around.
World stock markets rebounded Thursday as the fall in the Chinese yuan slowed and the country’s central bank tried to dampen speculation of further devaluation.
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“China does not have the need to start a currency war to gain advantage”, he was quoted as saying by the official Xinhua news agency.
