China lowers yuan fixing to three-week low amid Turkey currency crisis
Onshore yuan drops 0.51 per cent to 6.8810 per dollar, the biggest decline since July 1
The Chinese yuan is heading for its biggest daily drop against the US dollar in three weeks, after the People’s Bank of China (PBOC) lowered the daily currency midpoint as the Turkish lira crisis roiled global stock and currency markets on worries that contagion risks would spill over.
The Turkish lira hit a fresh record low on Monday with a further 6 per cent drop after the Trump administration’s doubling of tariffs on steel and aluminium imports from the nation sent the currency tumbling 18 per cent on Friday.
Onshore yuan dropped 0.51 per cent to 6.8810 per dollar, the biggest decline since July 19 after the central bank lowered the daily yuan reference rate to 6.8629 per dollar, its weakest level since May 31. Traders are allowed to deal in the currency up to 2 per cent on either side of the fix.
The PBOC is likely to introduce further measures to stabilise the currency if weakness persists, ING Bank said in a research note.
Asian currencies, however, which are most sensitive to the yuan, are likely to remain under pressure if the yuan were to see idiosyncratic weakness stemming from an escalation in the global trade war.
The Hong Kong dollar traded near the weak end of its trading band at 7.8499 per US dollar although it is yet to trigger any currency intervention by the Hong Kong Monetary Authority. The Vietnamese Dong slid to a record low and India’s rupee slumped 1.4 per cent.
According to a column in its second quarter monetary policy report released late on Friday, the PBOC pledged to use macro-prudential policy to implement “counter-cyclical tools” to stabilise the yuan if needed.
“While maintaining flexibility of the exchange, it was also necessary to keep a bottom line mentality,” the central bank said.
“The sinking Lira demonstrates the dangers that a rapidly depreciating currency could push the entire country into crisis mode, given companies in the real economy are sensitive to foreign exchange changes,” said Ken Cheung Kin-tai, senior Asia FX strategist at Mizuho Bank.
“With the yuan approaching 7.00 to the dollar, the PBOC has probably dropped its passive currency policy and turned more proactive to manage its depreciation expectation.”