Asian stocks stabilize as China yuan turmoil subsides

Sources said the move to devalue the yuan reflects a growing clamour within Chinese government circles for a devaluation of perhaps up to 10% to help its struggling exporters.

“China s cheapening of its currency opened a messy can of worms for markets and suggested the global economy may be worse off than previously thought”, Manimbo said. A lower yuan will make China’s exports more competitive.

On Tuesday, the People’s Bank of China cut the daily reference rate for the yuan by 1.9 percent-its biggest single-day drop in more than 20 years, and a drastic change from the narrow 0.3 percent band the yuan had traded in since March.

“We believe that China can, and should, aim to achieve an effectively floating exchange rate system within two to three years”, the global Monetary Fund (IMF) said in an official statement about Tuesday’s devaluation, adding, ” … a more market-determined exchange rate would facilitate SDR operations in case the Renminbi [yuan] were included in the currency basket going forward”.

On Thursday, the central bank set the yuan’s fixing only marginally lower, a sign it wants to let the yuan depreciate but only in a measured way.

“We are seeing a much calmer market today… now it’s understood that it’s actually not an intentional steering of the yuan exchange rate, but rather… a more market-driven move”, said Commerzbank currency strategist Esther Reichelt in Frankfurt.

Chinese shares closed higher on Thursday as fears of further currency depreciation subsided following the central bank’s reassurance that the yuan’s value has “returned to market levels” after days of sharp correction.

The central bank put the yuan’s parity rate at 6.4010 per US dollar on Thursday.

Germany’s two-year yield fell to a new record low of minus 0.29 per cent as investors feared the deflationary pressures of a slowdown in China’s economy would sap growth globally.

At 5 p.m., the dollar was at ¥124.58-59, up from ¥124.48-48 at the same time Wednesday.

Vice-governor Yi said China would quicken the opening of its foreign exchange market and would attract more foreign investors as it liberalises its financial markets.

Gold rose for the fifth consecutive day, rising to US$1,124.51 an ounce.

The Nikkei benchmark index advanced 1.1% despite official figures showing Japan’s core machine orders, a key indicator of future growth in the manufacturing sector, tumbled 7.9% in June from the previous month.