The central parity rate for Thursday was fixed at 6.4010, which was lower by 1.1 percent from Wednesday.
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It comes after recent economic data out of China has reinforced concerns that growth is slowing in the world’s second-largest economy.
The worldwide Monetary Fund said China’s move to make the yuan more responsive to market forces appeared to be a welcome step and that Beijing should aim to achieve an effectively floating exchange rate within two to three years.
The dollar, which had also suffered as investors pared back bets that the U.S. Federal Reserve’s long-awaited interest rate hike would come as early as its September 16th-17th meeting, rebounded on Thursday.
Sue Trinh, senior FX strategist at Royal Bank of Canada in Hong Kong, says “we are far from fairly valued” and sees the yuan dropping to 6.95 per dollar by the end of next year. It now sets the yuan’s daily fixing to the U.S. dollar based on the currency’s closing level the previous day.
But these are secondary considerations to what looks like the main objective, which is to ease the pressure on China’s economy by making the country’s sputtering exports more competitive. Yields on German 10-year bonds were 2 basis points higher at 0.64 per cent while benchmark US 10-year yields were 3 bps up at 2.16 per cent in European trade, following a lacklustre auction on Wednesday.
Instead, it links the yuan’s value to a basket of currencies. It was the biggest one-day fall in the yuan since a massive devaluation in 1994.
The spot rate is now allowed to trade with a range 2 per cent above or below the official fixing on any given day.
The yuan, also known as the renminbi, is used to execute global transactions and payments.
The West is crying foul and accusing Beijing of waging a currency war through direct intervention in the market.
“It seems capital markets have had their moment of uncertainty and the PBoC seem to have provided just enough clarity around the direction of the CNY (yuan) to appease”, said Chris Weston at IG Markets.
Chinese central bank officials on Thursday offered a rare public defense after their unexpected move this week to devalue the yuan, saying the currency will stabilize and eventually resume its climb.
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.
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“The argument that China is trying to spur growth by weakening its currency to spur exports does not strike us as very convincing”, said Paul Gruenwald, S&P’s chief economist for Asia-Pacific.
