China holds line on yuan, stocks weaken again

Wed Jan 13, 2016 5:12am EST
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By Samuel Shen and Nathaniel Taplin

SHANGHAI (Reuters) - China's central bank held the line on its yuan for a fourth straight session on Wednesday while putting the squeeze on offshore sellers of the currency, calming fears of a sustained depreciation - at least for now.

Having been alarmed by a near 5 percent slide in the yuan since August, investors globally appeared relieved by the stabilization.

Asian share markets outside China rose, and proxies for the yuan in currency markets, such as the Australian dollar, also firmed, while investors retreated from the safe-haven yen.

Chinese shares, however, ended the day sharply lower after a positive start, shrugging off December trade data, which beat forecasts and tempered some of the fears about the slowdown in the world's second-largest economy.

The People's Bank of China (PBOC) fixed the daily mid-point for the yuan at 6.5630 to the dollar, little changed from firm fixes on the previous two days. The market is allowed to deviate 2 percent either side of the daily fix.

By early evening the onshore spot rate had firmed to 6.5742 from the overnight close of 6.5756, and offshore the yuan was just a few pips away at 6.5736, also firmer.

The central bank has used aggressive intervention to force a huge leap in yuan borrowing rates in Hong Kong, essentially making it prohibitively expensive to speculate against the currency offshore.

The implied overnight borrowing rate shot over 90 percent on Tuesday, and while it moderated to around 10 percent on Wednesday, the central bank's signal was clear.   Continued...

A customer counts Chinese Yuan notes at a market in Beijing, August 12, 2015. REUTERS/Jason Lee