Yuan declines eased after the central bank signaled support for the currency, bringing an end to two days of panic selling that sparked the biggest rout since 1994.
The onshore spot rate weakened 0.5 per cent as of 2:08 pm in Shanghai, after a two-day loss of 2.8 per cent. The freely traded offshore yuan rebounded 1.1 per cent, after losing at least two per cent on each of the last two days. The People's Bank of China intervened to support the currency in mainland trading on Wednesday, according to people familiar with the matter. The PBoC said in a rare press conference on Thursday that there's no basis for depreciation to persist and that it will step in to control large fluctuations. China is shifting to a more market-determined exchange rate after a four-month de facto peg that prevented depreciation as the prospect of higher US interest rates buoyed the dollar.
"The PBoC has drawn a line in the sand and given verbal guidance to the market," said Eddie Cheung, a strategist at Standard Chartered Plc in Shanghai.
The yuan's offshore rate fell to a record 2.1 per cent discount to the onshore level on Wednesday, before Thursday's rebound narrowed the gap to 0.6 per cent.
The PBoC said in a statement Thursday that it's aiming for the two rates to move closer together. The currency's adjustment after the fixing method change is "basically already completed," said Assistant Governor Zhang Xiaohui, easing concern of further moves to push the yuan lower.
Under a new system used to set the daily fixing, market makers who submit contributing prices must consider the previous day's close, foreign-exchange demand and supply, as well as changes in major currency rates.
Authorities in China sold dollars via state-owned banks to support the yuan on Wednesday and told lenders to limit some firms' purchases of the greenback, people familiar with the matter said.
The yuan fell that day to as much as 1.9 per cent weaker than the People's Bank of China's reference rate, near the limit of its permitted two per cent trading range, before paring losses amid the intervention. Major banks were continuously selling dollars at the 6.4-6.42 levels from 10:45 am Thursday, a trader said.
'Managed Devaluation'
There is a "managed devaluation" under way and intervention risk remains high, said Christy Tan, National Australia Bank Ltd.'s head of markets strategy for Asia. "I think they are committed to closing the gap between the fix and market levels. As for where market levels are, it may from time to time be influenced by non-market forces, especially when volatility is high."
The yuan's latest spot rate of 6.4160 per dollar in Shanghai was about 0.2 percent weaker than the PBOC fixing, which fell 1.1 percent to 6.4010. The onshore currency is allowed to diverge a maximum 2 percent from the official rate.
The current exchange rate is now more consistent with economic fundamentals, and there is no need to adjust it to boost exports, PBOC Deputy Governor Yi Gang said at the press conference. He added that the nation will respect the market while letting the government play its role.
"The central bank has exited regular intervention," Yi said. "Only when there are external shocks or when the exchange rate exceeds the managed range will we conduct effective management."
Asian currencies fell 0.1 percent on Thursday. They tumbled the most since 2008 on Tuesday after the yuan's 1.9 percent devaluation sparked concern a currency war would break out. The won rose 1.4 percent, while Malaysia's ringgit rebounded 1.4 percent from a 17-year low.
"Market sentiment has improved," said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. "The PBOC will continue to intervene and guide the yuan to a reasonable equilibrium level. Investors are recovering from the last two days of panic."
The onshore spot rate weakened 0.5 per cent as of 2:08 pm in Shanghai, after a two-day loss of 2.8 per cent. The freely traded offshore yuan rebounded 1.1 per cent, after losing at least two per cent on each of the last two days. The People's Bank of China intervened to support the currency in mainland trading on Wednesday, according to people familiar with the matter. The PBoC said in a rare press conference on Thursday that there's no basis for depreciation to persist and that it will step in to control large fluctuations. China is shifting to a more market-determined exchange rate after a four-month de facto peg that prevented depreciation as the prospect of higher US interest rates buoyed the dollar.
"The PBoC has drawn a line in the sand and given verbal guidance to the market," said Eddie Cheung, a strategist at Standard Chartered Plc in Shanghai.
More From This Section
"If there are distortions, such as a very large gap between the onshore and offshore rates, the central bank will come in and stabilize the market."
The yuan's offshore rate fell to a record 2.1 per cent discount to the onshore level on Wednesday, before Thursday's rebound narrowed the gap to 0.6 per cent.
The PBoC said in a statement Thursday that it's aiming for the two rates to move closer together. The currency's adjustment after the fixing method change is "basically already completed," said Assistant Governor Zhang Xiaohui, easing concern of further moves to push the yuan lower.
Under a new system used to set the daily fixing, market makers who submit contributing prices must consider the previous day's close, foreign-exchange demand and supply, as well as changes in major currency rates.
Authorities in China sold dollars via state-owned banks to support the yuan on Wednesday and told lenders to limit some firms' purchases of the greenback, people familiar with the matter said.
The yuan fell that day to as much as 1.9 per cent weaker than the People's Bank of China's reference rate, near the limit of its permitted two per cent trading range, before paring losses amid the intervention. Major banks were continuously selling dollars at the 6.4-6.42 levels from 10:45 am Thursday, a trader said.
'Managed Devaluation'
There is a "managed devaluation" under way and intervention risk remains high, said Christy Tan, National Australia Bank Ltd.'s head of markets strategy for Asia. "I think they are committed to closing the gap between the fix and market levels. As for where market levels are, it may from time to time be influenced by non-market forces, especially when volatility is high."
The yuan's latest spot rate of 6.4160 per dollar in Shanghai was about 0.2 percent weaker than the PBOC fixing, which fell 1.1 percent to 6.4010. The onshore currency is allowed to diverge a maximum 2 percent from the official rate.
The current exchange rate is now more consistent with economic fundamentals, and there is no need to adjust it to boost exports, PBOC Deputy Governor Yi Gang said at the press conference. He added that the nation will respect the market while letting the government play its role.
"The central bank has exited regular intervention," Yi said. "Only when there are external shocks or when the exchange rate exceeds the managed range will we conduct effective management."
Asian currencies fell 0.1 percent on Thursday. They tumbled the most since 2008 on Tuesday after the yuan's 1.9 percent devaluation sparked concern a currency war would break out. The won rose 1.4 percent, while Malaysia's ringgit rebounded 1.4 percent from a 17-year low.
"Market sentiment has improved," said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. "The PBOC will continue to intervene and guide the yuan to a reasonable equilibrium level. Investors are recovering from the last two days of panic."