China fixes yuan stronger vs dollar, reversing falls

Whatever you choose to call it, China’s currency this week roiled global markets after the central bank’s sudden move to devalue it. The decision sparked fears of a new currency war and even drew the ire of Republican presidential candidate Donald Trump.

On Wednesday, Vietnam doubled the trading band for the dong, allowing the currency to weaken to try to make exports more competitive as China falls.

China’s central bank is rushing to calm fears over the yuan’s plunge in recent days. With foreign exchange reserves of around $3.65 trillion, China has plenty of scope to sell dollars and shore up its own currency. Solid U.S. retail sales data also supported the case for an early rate hike.

On Wednesday, the Chinese yuan was trading as much as 1.9% lower against the dollar.

He also rubbished claims that the bank was under pressure from government officials to see the yuan decline by 10% against the US dollar, calling the rumours “groundless”.

“The central bank, if necessary, is fully capable of stabilizing the exchange rate through direct intervention in the foreign exchange market to avoid the herd mentality resulting in irrational movements of the rate”, he said.

“Looking at the global and domestic economic situation, now there is no basis for a sustained depreciation trend for the yuan“, the People’s Bank of China said in a statement.

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

Asian currencies, stock markets and commodities prices are all anticipating further yuan weakness.

YUAN SLIDE: The Chinese currency fell for a third day but by late afternoon its decline was only 0.2 percent compared with drops of up to 1.9 percent on the previous days.

The PBOC on Tuesday adjusted the exchange rate formation system to better reflect market development by closing the gap between a lower central parity rate and higher market expectations.

The market-oriented exchange rate formation mechanism is more conducive to long-term stability, Yi said.

Earlier on Wednesday, the PBoC warned it was not pursuing steady depreciation in response to allegations that Beijing was manipulating the currency to boost exports. That was a baby step in the direction of more market determined rates.

As the yuan’s devaluation rocked the financial markets, India’s Chief Economic Advisor Arvind Subramanian has said that world economies, including India, will have to take note of Chinese currency devaluation designed to avert slowdown in its economy and exports.