Yuan drives Asian currencies

The People’s Bank of China insists there is no ground for sustained yuan depreciation, however a second consecutive daily devaluation would suggest otherwise.

The central bank put the yuan’s parity rate at 6.4010 per US dollar on Thursday. As a result, the yuan fell by a further 1.6% on Wednesday.

“A rigid yuan exchange rate is not suitable for China”, PBOC Deputy Governor Yi Gang reportedly said at the press conference.

But when that did little to assuage market turbulence, the government changed course by instructing state-owned Chinese banks in the final minutes of trading to sell dollars on its behalf, the Wall Street Journal reports.

Whatever the reason, a weaker currency won’t solve everything; the fall in exports is at least partly due to weak demand in key markets like Europe, for example.

As previously reported, Chinese exports in July came in 8.3% lower than the prior year after fears that the strength of the yuan was rendering Chinese exports uncompetitive.

“I don’t see them rebounding massively in the general context of things unless there’s some sort of extra explanation by the People’s Bank of China or some move by some other central bank to combat this devaluation”.

Since Tuesday, the currency, the yuan, also known as the renminbi, has fallen 4.4 percent, the biggest drop in decades. The currency can only trade 2 percent above or below the fixing level. In offshore trading, the yuan had fallen even more dramatically in previous days, to trade at a discount of more than 2 percent to the onshore rate, but gained ground against the dollar on Thursday to narrow that discount. It finished the week at 6.3918 yuan per dollar, 0.1% stronger than the fixing of 6.3975, according to China Foreign Exchange Trade System prices.

Japan’s Nikkei stock index fell 0.3 percent, and was down about 0.9 percent for the week. Many investors say the global economy is on track to continue expanding, and in a low interest-rate environment, that leaves returns on stocks still relatively appealing.

Economists had feared that the central bank was resorting to devaluing its currency in an attempt to shore up growth, as official GDP figures are widely believed to have been manipulated in an attempt to present a brighter picture of the Chinese economy.

The move – prompted by Beijing’s concerns about an economic slowdown and an overvalued yuan making China’s exporters less competitive – wiped nearly £1trn off shares worldwide in two days, amid worries over a fresh escalation of global currency wars.