China’s foreign-exchange market is stabilizing after a historical week that saw the biggest selloff in two decades and a move to a more market-driven currency regime. Here’s a look at where things stand after the volatile trading days. 

Fixing Converges With Spot:

The market exchange rate has converged with the official reference rate, or fixing, since Thursday after consistently trading more than 1 percent weaker in recent months. That suggests the policy adjustment may be achieving its goal and that there’s less likelihood of movements of similar magnitude going forward, according to RBC Capital Markets. 

On Tuesday, the People’s Bank of China cut the fixing by 1.9 percent, the biggest decline since 1994. The change was an attempt to align the official and market rates, as the central bank moves to a new regime where the central bank gives supply and demand more sways in deciding its foreign exchange rate.


Investor expectations for swings in the yuan have declined after the initial spike following the surprise shift on Aug. 11. Three-month implied volatility for the offshore yuan fell to 5.4 percent Friday, down from 7.8 percent, the most since 2011 when Bloomberg started compiling the data. The gauge has still more than doubled from earlier this month.


Depreciation Expectations:

Traders have pared their expectations of the yuan’s depreciation. Twelve-month non-deliverable forwards, which investors use to speculate or hedge against moves in the yuan, traded 2.5 percent weaker to the official fixing on Friday, narrowing from a discount of 4.2 percent on Aug. 11, the most since 2008.

The median forecast of nine analysts who provided their predictions since Aug. 12 was for the yuan to weaken about 2 percent to 6.5 per dollar by the end of this year.



Onshore and Offshore Rates:

The freely traded offshore yuan was about 1 percent weaker than the onshore rate, reflecting overseas investors’ bearish sentiment towards the Chinese currency. The discount was still near the biggest in four years. The central bank said it targets the convergence of the local and overseas exchange rates.

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