Yuan steady as China central bank halts decline, stocks swing

The central People’s Bank of China (PBOC) announced to improve its central parity system to better reflect market development in the exchange rate between the Chinese yuan RMB against the U.S. dollar on Tuesday. For the week the yuan declined by almost 3% – its biggest move in years.

“Greater exchange rate flexibility is important for China as it strives to give market forces a decisive role in the economy and is rapidly integrating into global financial markets”, the worldwide Monetary Fund said.

GBP Construction Output 0.9% vs. 2.4%.

“We had been expecting such a move to occur once the country’s external borrowers had managed to repay some more of their existing foreign liabilities”, said Hunt in a note circulated after worldwide markets were surprised by the fact that Tuesday’s initial depreciation, characterised as a “one-off” adjustment by the PBOC, led to a second day of RMB depreciation on Wednesday and sparked fears of a new “currency war” in which major economies seek to weaken their exchange rates to boost export competitiveness. The change helps meet the IMF’s criteria for including the renminbi in the basket making up the SDR (special drawing rights), where a five-yearly decision is expected from the IMF’s Executive Board in October or November this year.

But Fitch said the move was clearly linked to declining exports and fixed-asset investment, and from broader concerns over growth.

China’s devaluation of its currency is designed to cushion it from strengthening along with the US dollar after a projected interest-rate rise from the US Federal Reserve, according to investment banking firm Goldman Sachs. NYMEX crude oil prices plummeted 3% to hit a 6.5-year low, also weighing on base metals.

In a statement on Wednesday, China’s central bank indicated that it would let the market play a bigger role in setting the exchange rate. Recently, this has also included the change to allow banks to issue large-denomination certificates of deposits at unregulated deposit rates since June 2015.

Some, like The New York Times, have suspected that Beijing’s currency moves are part of an effort to “offset the country’s slowing economy” and make Chinese-made goods more affordable for US and European consumers. It could potentially broaden the impact from China’s now-expiring real estate boom for those economies that are more exposed to Chinese consumption – including major commodity exporters such as Australia and Indonesia.