Markets rally as Beijing pledges to halt runaway yuan

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.

There is “no basis for persistent and substantial devaluation“, said a deputy central bank governor, Zhang Xiaohui, at a news conference on Thursday.

The PBOC has just announced the yuan’s fixing level for Friday, and it’s stronger than where it closed yesterday.

This comes after declines of at least 1.6% the previous two days roiled global markets and leave many economists and strategists wondering how high the dollar/yuan rate can rise (yuan fall).

The Nikkei index slid 0.4% to close the week at 20,519.45 points.

Asian markets were mixed on Thursday, but China’s benchmark Shanghai index was up 0.74 percent by mid-morning.

The rupiah plunged to 13,831 a dollar Wednesday, the weakest since July 1998, after Indonesian President Joko Widodo named a former central bank chief as economy minister in a cabinet revamp aimed at boosting growth. During the three sessions, the yuan fell more than 3 percent against the U.S. dollar before it rebounded on Friday. European markets also opened higher, with gains of around 1.5%, while the FTSE 100 was 0.7% ahead in early trading on Thursday. “In coming months, if the intervention eases, the data will return to normal”, the trader said. “The market certainly perceives that the Chinese authorities don’t want the CNY to weaken too dramatically”. It also was welcomed by the worldwide Monetary Fund and cautiously by the U.S. Treasury, but criticized by some U.S. politicians, prompting talk of a “currency war”.

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 decline was small compared with fluctuations of freely traded currencies. Aluminum was little changed.

China is exporting “deflationary pressure”, said Morgan Stanley analysts Hans Redeker, Ian Stannard and Sheena Shah in a report. The ringgit also sank to a 17-year low this week, sliding beyond four per US dollar as investors shrugged off better-than-expected economic data to focus on a drop in energy prices that’s cutting earnings for Malaysia, a net oil exporter.

Against the China backdrop, Fisher did talk about the challenges of not raising US interest rates at the Fed’s meeting next month.