Another weaker yuan fix from the PBOC, again significantly weaker than where the USD/CNY closed on Wednesday, along with a 7% plunge in China’s stock market in less than 14 minutes of trade, rattled markets across the region, and sent investors scurrying to traditional safe havens such as gold.
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However, the market players also said that the yuan’s weakness could potentially boost China’s overall exports eventually.
The Chinese yuan sank to a five-year low as the People’s Bank of China set the onshore yuan midpoint rate at the weakest fixing since April 2011.
The central bank foresees “some uncertainty” concerning the exchange rates of the U.S. dollar in the following period, and the impact of the U.S. Fed’s interest rate hike has largely digested by the market.
As of the end of 2015, the CFETS exchange rate composite index, which measures the yuan’s strength relative to a basket of 13 foreign currencies, stood at 100.94, up 0.94 percent from the end of previous year.
It was the currency’s biggest one-day move since July 2005, when Beijing started its exchange rate reforms. China’s stocks headed for the steepest weekly loss this month in shrinking turnover amid growing concern government measures to support the world’s second-largest equity market and economy are failing.
“The depreciation of the yuan against the USA dollar has dampened buying sentiment”.
The drop in the stockpile would have been even greater had it not been for strength in other currencies that China holds in reserve.
Chinese buyers in the synthetic rubber market are being very cautious given the depreciated yuan against the U.S. dollar, which makes it more expensive for them to import synthetic rubber, which is transacted in USA dollar, market sources said.
“The magnitude of the yuan’s depreciation has really exceeded our expectations and this situation is only likely to continue”.
Equities markets were also notable and immediate casualties, especially domestic Chinese shares.
Regional currencies promptly went into a tailspin. “The fear of the unknown has become the largest risk for RMB in the near term, despite China’s sizeable current account surplus”, said Singapore-based Oversea-Chinese Banking Corporation (OCBC).
“When we undertake price negotiations with suppliers nowadays we have to take into consideration a potential, further depreciation of the yuan against the dollar”, a different BG importer said.
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South Korean stocks fell 0.3 percent and the won slumped to its weakest in more than three months, hurt by North Korea´s reported testing of a hydrogen bomb.
