- The Chinese yuan has fallen to the weakest level against the greenback since May 2008.
- Investors have reacted negatively to the news, sending Asian stocks and currencies sharply lower.
- US S&P 500 futures are currently down more than 1% on the news.
The Chinese yuan has fallen to the lowest level since May 2008, leading to a new wave of risk aversion across the Asian region.
The USD/CNY, or the US dollar compared to the onshore-traded yuan, hit a high of 6.9642 in early trade on Friday, surpassing the previous high of 6.9603 set in early January last year.
A higher number indicates a weaker yuan.
On Friday, the People’s Bank of China (PBoC) setting the midpoint of the USD/CNY daily trading range at 6.9510, also the weakest level since January last year, and beyond the 6.95 level that some had speculated the PBoC would step in to prevent a further decline.
A range of factors are combining for this result, but the ongoing weakening of China’s currency helps to keep the nation’s exports somewhat competitive when increasing numbers of its goods are being subjected to import tariffs by the Trump administration.
Chinese Premier Li Keqiang said the government had no wish competitive devaluation of the yuan to stave off the effects of an escalating trade war with the United States, pledging once again to keep the yuan “relatively stable”.
The yuan moved off its earlier news on the statement, although not by much.
It currently trades at 6.9599.
From late March this year, the US dollar has risen 11.4% against the yuan, reflecting a divergence in not only economic performance but also monetary policy settings from the US Fed compared to the PBoC.
In contrast, the offshore-traded yuan, or CNH, has paid little attention to the move in onshore markets with the USD/CNH sitting at 6.9720, just off the high of 6.9745 struck earlier in the session. It sits just below the highs struck in January last year.
The offshore yuan is predominantly traded in Hong Kong, and fluctuates around the clock as opposed to the onshore yuan.
While the latest bout of weakness follows another jump in the US dollar index on Thursday, it also coincides with data released from China State Administration of Foreign Exchange, or SAFE for short, that revealed net foreign currency sales at China’s commercial banks rose to $US17.6 billion in September, up from $US14.9 billion in August, indicating increased capital outflow pressures last month.
According to Reuters, the September figure was the largest since June 2017.
Separate data on Thursday from the People’s Bank of China (PBoC) showed it sold a net 119.4 billion yuan ($US17.19 billion) worth of foreign exchange last month, the highest since January last year as it sought to slow the yuan’s decline.
The latest slide in the yuan has not gone unnoticed by investors in Asia with stocks and currencies across the region falling heavily in response.
Here’s how stocks are faring at 3.40pm in Sydney.
Australia ASX 200 5639.70 , -0.43%
Japan TOPIX 1590.60 , -0.64%
Shanghai Comp 2588.66 , -0.58%
Shenzhen Comp 1288.98 , -0.30%
HK Hang Seng 24642.93 , -1.41%
Sth Korea KOSPI 2022.40 , -1.98%
Sinagpore STI 2962.04 , -1.69%
Taiwan TAIEX 9458.43 , -0.65%
Philippines PSI 7013.54 , 0.67%
Indonesia JKSE 5751.90 , -0.05%
Malaysia KLCI Index 1681.77 , -0.29%
Thailand SET 1633.69 , -0.65%
India Nifty 50 10029.4 , -0.94%
S&P 500 Futures 2661.25 , -1.00%
All major markets except for the Philippines are trading in the red with losses in South Korea and Singapore particularly nasty.
S&P 500 futures are also down 1%, indicating the surge in US markets on Thursday may well end being a dead-cat bounce.
Investors clearly don’t believe the latest bout of stock market volatility is over.
Currencies across the region are also under pressure, especially the Australian dollar — widely regarded as a China proxy — which has fallen to fresh multi-year lows against the US dollar.
AUD/USD 0.7033 , -0.65%
NZD/USD 0.6480 , -0.66%
USD/JPY 112.20 , -0.18%
USD/CNY 6.9599 , 0.18%
USD/CNH 6.9720 , 0.24%
USD/HKD 7.8407 , 0.00%
USD/KRW 1144 , 0.63%
USD/SGD 1.3837 , 0.23%
USD/TWD 31.00 , 0.16%
USD/PHP 53.73 , 0.15%
USD/MYR 4.175 , 0.17%
USD/IDR 15215 , 0.20%
USD/THB 33.06 , 0.43%
USD/INR 73.36 , 0.19%
US Dollar Index 96.68 , 0.00%
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