China’s central bank attributed the yuan’s move to speculators and said it would maintain the currency stable at an equilibrium level.
Advertisement
Since the reform to the central parity rate on August 11, the gap between the reference rate and the previous day’s USA dollar/yuan closing rate has been largely in line with the overnight movement of the CFETS RMB Index, HSBC said. Speculators would no doubt be having a picnic trading the volatility.
“The trend for the yuan to weaken is continuing in the new year as the People’s Bank of China weakens the currency’s fixing”, Eddie Cheung, a Hong Kong-based currency strategist at Standard Chartered, told Bloomberg News.
Government intervention in markets invariably results in unintended consequences, and China’s “circuit breaker” on their stock market is only the latest example.
Investors were anxiously awaiting the yuan fix to see if China’s central bank allowed it to fall yet further, a move that would likely intensify pressure on regional currencies and benefit the yen.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2 per cent, extending this week’s loss to 7.4 per cent, which would be its biggest fall since September 2011.
The market fell almost 2 percent more in just one minute after trading resumed and then was closed for the day.
The massive risk inherent in that strategy became painfully apparent this week, gathering momentum Thursday and hammering global markets from stocks to commodities.
The problem is that most outside traders consider the yuan to be more than 10 percent overvalued against the USA dollar.
For the second time this week, steep declines in Chinese stocks triggered a new mechanism that stopped trading altogether.
The slide in Chinese and other foreign currencies against the dollar has already hurt USA exporters, and Evans said that events in China this week are another argument for the Fed to go slow. So for all the talk of China manipulating the yuan downward, this appears more like cushioning a depreciation.
While the onshore yuan market has stabilised in response to central bank blandishments, the offshore yuan continues to price in deeper discounts; trading at 6.6373 per dollar, 1.7 percent weaker than the onshore currency.
The country’s foreign exchange stockpile, the world’s biggest, declined to $3.3 trillion last month, down some $108 billion from November, according to figures released by the State Administration of Foreign Exchange (SAFE).
Beijing has gradually loosened the reins on the tightly controlled currency, pledging to let market forces have greater influence on the exchange rate. Why don’t folks fret the Israeli shekel falling -13.4% or the Norwegian krone dropping -8.4% over the same timeframe? Unlike most developed markets, whose stock markets are fairly good leading indicators of economic activity, China’s stock market is largely divorced from its economy.
Advertisement
“The proximate cause for the carnage was weaker-than-anticipated manufacturing PMI figures” for China, said Matt Weller of Forex.com in a client note.
