Yuan Rebounds From Five-Year Low as China Moves to Calm Stocks

  • PBOC said to intervene in currency market to limit volatility
  • Nation will try to ease depreciation concern: Commerzbank

The yuan rebounded from a five-year low as Chinese authorities moved to calm concerns sparked by the worst-ever start to a year for the nation’s equities.

State-controlled funds bought stocks and the securities regulator signaled that a ban on share sales by major investors will remain beyond this week’s expiration date, according to people familiar with the matter. China’s central bank stepped into the currency market to prevent excessive volatility, said a person with direct knowledge of the matter, adding that the intervention wasn’t meant to guide the yuan higher or lower.

“The authorities will try to calm any market expectations of a fast depreciation of the yuan," said Zhou Hao, an economist at Commerzbank AG in Singapore. "China does not want a repeat of the market fear and concerns seen during the stock rout last summer and after it devalued the yuan on Aug. 11.”

The yuan strengthened 0.28 percent to 6.5157 a dollar as of 3:30 p.m. in London on Tuesday, according to China Foreign Exchange Trade System prices. The currency fell 0.7 percent in the last three sessions, the most since August, to decline to a five-year low on Monday.

Extended Hours

While China has extended onshore yuan trading hours to 11:30 p.m., the central bank said last month that it would continue to view the 4:30 p.m. price as the closing level. This is significant because the monetary authority’s system of setting the yuan’s daily fixing uses the previous day’s close as one of the factors.

The offshore yuan fell 0.21 percent to 6.6442 a dollar. The central bank set its daily fixing for the onshore yuan at 6.5169, or 0.26 percent stronger than the currency’s last price at 11:30 p.m. on Monday and little changed from the 4:30 p.m. level.

The offshore yuan’s discount to the rate in Shanghai widened to more than 1,200 so-called pips, the most since August. That compares with an average of 304 pips in November and 706 in December.

Liquidity outside of regular Asia hours can be relatively poor, heightening the risk of unrepresentative exchange rates and manipulation, the People’s Bank of China said while announcing the extended trading hours in December. The nation aims to provide more channels for trading of the yuan, which will help converge the currency’s onshore and offshore rates, the PBOC said.

The Chinese government will take a "strong policy response" to diminish hard-landing worries and restore investor confidence, Prakash Sakpal, a Singapore-based economist at ING Groep NV, wrote in a note Tuesday.

— With assistance by Tian Chen

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