European stocks rally sharply at the open

In addition, to its attempts to restore export volumes it is also rumoured that the Chinese are hoping to achieve reserve currency status.

China’s central bank said it has the firepower to defend the yuan if necessary, and stressed the yuan would stabilize and eventually rise. Australia’s S&P/ASX 200 was down 0.6 percent to 5,358.40.

Tan said that China’s gross domestic product (GDP) accounted for 43 percent of the total created by the economies in the Asian Pacific region, so there is no doubt that other regional currencies will follow the yuan to move lower, while the magnitude of the falls in different currencies will vary.

The yuan is still only allowed to fluctuate up or down two per cent on either side of the reference rate.

Meanwhile, central bank adviser Huang Yiping told Bloomberg that China is unlikely to permit a sharp yuan depreciation and retains the ability to support the currency.

Asian currencies sensitive to the redback tumbled to new lows during this week’s trading, which has prompted China’s central bank to hold an unprecedented press conference on Thursday in an attempt to reassure the markets. The rate was also slightly stronger than Thursday’s close of 6.3982 yuan.

China devalued its currency on Tuesday after a run of poor economic data, a move it billed as a free-market reform but which some suspect could be the beginning of a longer-term slide in the exchange rate.

But he said the PBoC will exercise “effective management” in case of large fluctuations and dismissed rumours that officials had set a target for a 10 percent depreciation in the yuan to spur exports.

The adjustment spurred by Tuesday’s change to how the country determines the daily reference rate is basically already completed, Assistant Governor Zhang Xiaohui said in Beijing.

China’s economic growth has slowed to an annual rate of just 7%, which is healthy for most countries but far below the previous decade’s double-digit pace.

Beijing has been lobbying the IMF to include the yuan in its basket of reserve currencies known as Special Drawing Rights, which it uses to lend to sovereign borrowers, which would enable more worldwide use of the yuan.

“China does not have the need to start a currency war to gain advantage”, he was quoted as saying by the official Xinhua news agency.

One-year NDFs are settled against the midpoint, not the spot rate, and now that the trading band has been widened to 2 per cent in either direction, corporates are much more wary of using NDFs to hedge, given the basis risk inherent in them.