NZ dollar falls as concerns over Chinese yuan ease

The yuan fell about 3 per cent this week, beginning its slide on Tuesday after a surprise change in exchange rate policy, which roiled global financial markets and caused Asian stocks and currencies to tumble. Further weakness could make dollar-denominated debt more expensive for Chinese borrowers, exacerbate capital outflows and put pressure on export rivals to devalue their currencies.

That prompted China’s central bank to attempt to calm jittery markets on Thursday by insisting that it was not trying to engineer a rumoured 10pc fall in the yuan. Massachusetts described the yuan’s current rate as “near equilibrium”.

The gap between the guidance rate and the traded spot market rate narrowed sharply as banking sources said the PBoC had stepped up intervention to stabilize prices.

China’s short-term funding costs climbed slightly this week as Tuesday’s unexpected devaluation of the yuan tightened liquidity in the money market, traders said.

Each day, the People’s Bank of China sets a target for the yuan, then lets the currency trade 2 percent above or below that level.

London nickel, copper and aluminium all dropped to six-year lows on Wednesday as fears intensified that the weaker yuan would corrode demand.

The country’s Central Bank raised the value of the yuan by 0.005pc against the dollar.

The move to a more “market-oriented” policy, the PBoC is eyeing the possible inclusion of the renminbi in the global Monetary Fund’s Special Drawing Rights (SDR) currency.

Anyway, when the Chinese made an adjustment in their reference rate of “only” 1.9 percent, I was amazed at the sky-is-falling rhetoric on financial TV.

The freely traded offshore yuan advanced 0.6 per cent, August 14, 2015.

“We believe that yuan may reach new equilibrium at around 6.4-6.5 levels, but short term volatility may remain higher”, said Suanjin Tan, a portfolio manager at BlackRock.

China’s central bank has devalued its strictly regulated currency for the second day in a row.

Now, as China’s once-red-hot domestic economy slows down, the government and Chinese state-owned companies have stepped up a heavy flow of investment in a wide range of new ventures around the world. “A single move might have passed without reaction from China’s trading partners, but now it looks like a tit-for-tat move by others in the region is certain”.

The sales figures added to expectations the US may raise interest rates for the first time in nearly a decade, a move that had been tipped for as early as next month before the yuan devaluation.