Yuan Halts Three-Day Slide as PBOC Reference Rate Strengthens

The value of the yuan has gradually returned to market levels as the discrepancy between the central parity rate and the actual trading rate has been largely corrected after declines in the past few days, Zhang Xiaohui, assistant governor of the People’s Bank of China (PBOC), said during a press conference here.

But ratings agency Moody’s said that the renminbi’s depreciation would “not have have material credit implications because it will not significantly bolster export growth“.

While most major currencies saw limited moves, the New Zealand dollar fell after domestic retail sales had the slowest increase in two years, cementing expectations its central bank will cut rates.

Allaying fears of further fall of RMB, PBOC today said the Chinese currency should remain strong in the long run, dismissing worries that the bank’s adjustment of the exchange rate mechanism would lead to a slump in the currency.

On Friday, the People’s Bank of China set the yuan midpoint at 6.3990 yuan to the dollar, slightly stronger than Thursday’s levels.

The yuan has dropped almost 3 percent against the dollar since China implemented its devaluation earlier this week, and the move could hurt the United States in several ways. Many see another global crisis on the horizon as these yuan moves have big implications for other Emerging Market currencies, economies, and their debt.

Analysts have viewed the action as a way for China to both boost exports by making its goods cheaper overseas and push economic reforms.

The spot market opened at 6.3880 and was changing hands at 6.4080 after the PBOC comments, 210 pips weaker than the previous day’s close and only 0.1% away from the guidance point, the closest it has traded to the guidance rate since November 2014.

Having signalled on Tuesday that the country’s currency intervention was a “one-off depreciation”, China has devalued its currency for a third consecutive day.

The PBOC has stopped “regularly” intervening in the foreign exchange market but could still conduct “effective management” of the yuan in cases of extreme volatility, Yi said. A more flexible, market-orientated exchange rate is likely to impress the International Monetary Fund, facilitating the integration of China into the global financial system.

The PBOC says that it is still on track to grow its economy by 7% this year despite the beatdown in the Chinese stock market and real estate markets.

“China will continue to calm down”, said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago.

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