Yuan ends session lower against USD

Hence the 4 percent fall in China’s yuan in the last two days will not change the course of business dynamics between the two nations majorly.

The Chinese currency renminbi (RMB), or the yuan, should remain strong in the long run, a central bank official said on Thursday, after worries that the bank’s adjustment of the exchange rate mechanism earlier this week would lead to a slump in the currency. But officials also said the yuan’s underpinning remains firm and that its value should strengthen, and dismissed the idea that the move was made to help the country’s sputtering exports sector.

The PBOC said in a rare press conference that there’s no basis for depreciation to persist and policy makers will step in to control large fluctuations. “The one-time total depreciation of around 3% is largely finished… and is a necessary phase in exchange rate reform”.

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.

The yuan’s latest spot rate of 6.4175 per dollar in Shanghai was about 0.2 per cent weaker than the PBOC fixing, which fell 1.1 per cent to 6.4010. The euro fell half a percent on Thursday, hitting a low of $1.1105 after minutes from the European Central Bank’s latest rate meeting showed policymakers anxious about the impact of Chinese market volatility and an upcoming US rate hike.

The yuan was quoted at 6.4067 to the dollar at midday, down from the previous day’s close of 6.3870.

“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.

A surprise shift Tuesday in how the People’s Bank of China (PBOC) fixes the currency initially sparked fears that Chinese leaders were concerned about the country’s growth prospects and dragged down global markets. While that is true, it’s unlikely China devalued the yuan just for that reason.

The risk-averse mood after China’s moves this week had heightened the appeal of safe-haven government debt, which then pushed down US treasury yields and pressured the US dollar.

Bloomberg News reported Wednesday the central bank had intervened in the market to buy dollars and prop up the yuan, which PBoC Deputy Governor Yi Gang declined to confirm at Thursday’s briefing. Authorities can point to demands by the worldwide Monetary Fund (IMF) to give market forces a greater role in determining the currency’s value.