Trading on China’s stock markets was suspended for the rest of the day, for the second time this week, as a new circuit-breaking mechanism was tripped less than half an hour after the open. After that, the onshore yuan dropped 0.6 percent to 6.5560 per dollar in Shanghai and offshore yuan dropped 1.1 percent to 6.7310 per dollar in Hong Kong, both are the weakest levels since March 2011.
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Regional currencies promptly went into a tailspin.
In addition to the central bank’s determination to keep the yuan stable, the conditions are there for the currency to stay basically stable, said the article, citing the steady overall economy.
In bond markets, yields on 10-year US Treasuries fell to a two and 1/2-month low of 2.119 percent on Thursday and last stood at 2.17807 per cent. German Bunds were steady at 0.539 after their yields fell this week as investors headed into safe assets.
It added that China has ample foreign exchange reserves, while there is no basis for the yuan’s continuous depreciation.
Further declines could send shockwaves around the world as they could trigger further capital flight from China and potentially set off competitive currency devaluations in other countries, some economists have said. After the market close yesterday, the PBoC said China’s foreign exchange reserves decreased $108 billion to $US3.3 trillion in December, well above the street expectation of $US23 billion outflow and November’s $US87 billion outflow.
“With concerns about the Chinese economy growing, the market is dominated by a risk-off mood”, said Yuzo Sakai, manager of foreign exchange business promotion at Tokyo Forex & Ueda Harlow. Another problem is that the weaker yuan makes it more expensive for China to import commodities (in U.S. dollars).
Chinese stocks dropped 7% Monday, triggering a halt to trading and leading to a global selloff.
Meanwhile, the USA raised interest rates in December and more rises are expected in 2016. Against the euro, it gained 0.5 percent to $1.0861.
“That means that whatever U.S. dollar price we pay, we will end up selling the product at a loss in the domestic market”, said a Chinese BG importer. The euro was up 0.4 percent at $1.0824 EUR= with the dollar on the back foot.
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“This is insane. Chinese regulators set off on this path in July and they can not get out of it. They have ruined whatever hope investors still had in the market”, said Alberto Forchielli, founder of Mandarin Capital Partners.
