China December forex fall largest ever seen

Chinese stocks nosedived Thursday, triggering their second daylong trading halt this week and dragging down global markets, Asian currencies and oil prices as investors fretted about the world’s No. 2 economy.

The central parity rate of the yuan against the USA dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day. The Canadian dollar slipped 0.5 percent to C$1.4151 per greenback, having depreciated to a 12-year low of C$1.4170. After the trading halt, the China Securities Regulatory Commission announced that major shareholders could not sell more than 1 per cent of a company’s shares within three months as of January 9. The spot rate is now allowed to trade with a range 2 per cent above or below the official fixing on any given day.

“[Chinese officials are] not trying to weaken it, they’re trying to keep it from weakening”, says Win Thin, head of emerging market currency at Brown Brothers Harriman.

Both the recent devaluation of the Chinese currency to a 5-year low, by the People’s Bank, and the unexpected fall in the Caixan Services indices were bad omens for the kiwi, which tends to underperform in a risk off environment.

That was despite a drop in layoffs and the number of Americans filing for jobless benefits, pointing to a strong December employment report on Friday.

All of this is happening at the same time that USA interest rates are on the rise – a flawless storm perhaps that could send economies in Asia on a disastrous path.

The global problem of excess supply and limited demand is being played out on a day by day basis in these markets, as well as in oil, which has fallen to the lowest level since December 2003.

In commodities Brent crude settled down 48 cents at $33.75 on Thursday, after sliding to a low of $32.16, a level last seen in April 2004. Japan’s Nikkei shed 2.3 percent in sympathy, and Hong Kong’s Hang Seng Index was down 2.8 percent.

Gold eased back to $1,103.4 after earlier rising to $1,112, the highest since November 4. Unemployment gains are also slowing but this is likely to be a result of a tightening of the labour market and an elimination of slack; we are on sentry duty for higher wages and the beneficial effects that they will bring.

In the last few months, though it’s got progressively worse.

The euro was quoted at $1.0887-0888 and 128.69-76 yen against $1.0925-0935 and 128.54-64 yen in NY and $1.0783-0784 and 127.25-29 yen in Tokyo late Thursday afternoon.

The Australian dollar, often used by foreign exchange dealers as a liquid proxy for the yuan, fell more than half a USA cent. The Korean won, however, recovered nearly all of its initial falls with banks saying the Bank of Korea had probably also intervened to support the currency.