Regional currencies fall sharply on China's record yuan devaluation
In a surprise move on Tuesday, China weakened the yuan's daily reference rate by a record 1.9 per cent, allowing depreciation to combat a slump in exports, sending the Singapore dollar and other regional currencies sliding.
The yuan itself dropped an unprecedented 1.2 per cent to 6.2848 per US dollar as of 9:43 am in Shanghai, and slid a similar amount in Hong Kong's offshore trading.
The onshore spot rate was 0.9 per cent weaker than the reference rate of 6.2298, within the 2 per cent limit allowed by the People's Bank of China.
The Singapore currency fell sharply against the US dollar to levels last seen in March when markets opened on Tuesday morning.
One US dollar could buy about S$1.39 Singapore dollars as at 10am, from about S$1.38 at the previous close.
The Singdollar slide also came on the back of the Ministry of Trade and Industry narrowing its growth forecast for the Singapore economy this year, amid slowing growth in China and an uneven global economic recovery.
The Singapore economy is now expected to grow between 2 and 2.5 per cent this year, from an earlier forecast of 2 to 4 per cent.
China's surprise cut in the reference rate also triggered sharp declines in the currencies of its key trading partners.
The Aussie, often used as a liquid proxy for the yuan, plunged 1 per cent to 73.39 US cents as of 11 am in Tokyo, while the New Zealand currency fell 0.9 per cent to 65.58 US cents.
The Aussie and the kiwi are each down more than 10 per cent this year against the greenback as weakening Chinese demand drives down prices for their commodity exports.
Other currencies in the region also lost ground to the US dollar as investors reasoned they would have to ease to stay competitive with China.
The Indonesian rupiah fell 0.05 per cent to 13,555 to reach its lowest level since July 1998.
The rupiah has fallen nearly 9 per cent so far this year, the second-worst performer in emerging Asia.
Monday's reference rate increase was a one-time adjustment, the PBOC said in a statement, adding that it will strengthen the market's role in the fixing and promote the convergence of the onshore and offshore rates.
It said also that it will keep the yuan stable at a reasonable level. The yuan's effective exchange rate is stronger than that of other currencies, which is a deviation from market expectations, the central bank said.
The comments come after the PBOC said earlier Tuesday that a strong yuan puts pressure on exports.
China's overseas shipments fell 8.3 per cent from a year earlier in dollar terms in July, well below the estimate for a 1.5 per cent decline in a Bloomberg survey.
The PBOC has kept the yuan broadly stable against the dollar since March and had been tightening its grip on the exchange rate as it encourages greater global usage in a push for official reserve status at the International Monetary Fund.
The currency's closing levels in Shanghai were restricted to 6.2096 or 6.2097 versus the dollar for more than a week and daily moves were a maximum 0.01 per cent over the past month.
