The yuan, halted a three-day slide after the central bank soothed market sentiments on Thursday, reversing short but sharp declines triggered by a foreign exchange (forex) policy change.
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During a press conference in the early hours of this morning, the People’s Bank of China (PBoC) said the strong economic environment, sustained trade surplus, sound fiscal position and deep foreign exchange reserves provided “strong support” to the exchange rate. “The central bank is capable of keeping the renminbi stable”.
Although the PBOC tried to calm the global financial markets by saying the yuan has no basis to depreciate as the China economy remained sound, some currency traders have even speculated that the PBOC could allow the yuan to fall another 5 percent. Massachusetts described the yuan’s current rate as “near equilibrium”.
The PBOC has said it would now take more notice of market forces when calculating the daily yuan fix, including the closing price in the previous day’s trading session. China’s modest devaluation of its currency dominated market activity, as the yuan lost 3 percent on the week, and investors were left questioning whether the move will continue to pressure the Japanese yen and other Asian currencies.
The Shanghai Composite Index rose 0.8pc and the Hang Seng Index was up 0.1pc.
Trading sources said that major state banks had been buying up yuan and selling off dollars to prop up the currency, causing the exchange rate to recover sharply in the last few minutes of trade on Wednesday.
It was also lower than Wednesday’s close, and comes after China adopted a more market-oriented method of calculating the currency rate in a move widely seen as a devaluation. “However, there may not be any large positioning ahead of the weekend and any gains in the risk asset markets are expected to be modest”.
The adjustment spurred by Tuesday’s change to how the country determines the daily reference rate is basically already completed, Assistant Governor Zhang Xiaohui said in Beijing.
The dollar gained traction against the Yen on Thursday following a third consecutive devaluation by the Peoples Bank of China.
According to Yi, a more flexible exchange rate will help to achieve a balance between capital inflows and outflows.
The New Zealand dollar traded down 0.5 per cent at $0.6540.
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Analysts viewed the move as a way for China to both boost exports by making its goods cheaper overseas and push economic reforms as it seeks to become one of the reserve currencies in the worldwide Monetary Fund’s SDR (special drawing rights) group.
