Yuan hits a five-year low after China devalues again

Mexico warned that China’s weakening of the yuan could trigger a global currency war, as the peso hit new lows against the dollar. The central bank also said on Monday it had extended 135 million yuan of loans to local financial institutions under a standing lending facility (SLF) in December, along with 100 billion yuan ($15.3 billion) in loans to 13 financial institutions under a medium-term lending facility (MLF).

Australian shares lost 0.7 percent and South Korea’s KOSPI dipped 0.1 percent.

CMC’s McCarthy said China’s economic slowdown – evidenced again on Wednesday by data showing weakness in China’s services sector – remained the most serious threat to markets.

China’s foreign currency stockpile shrank to $3.3 trillion last month, the central bank said Thursday. Trading on its stock markets was suspended for the rest of the day.

Currency investors moved into safer investments, with the dollar and yen climbing.

“The fear of the unknown has become the largest risk for RMB in the near term, despite China’s sizable current account surplus”.

This week’s turmoil echoes the turbulence of last summer after the Chinese central bank staged the 2 percent devaluation on August 11 in the midst of an emerging market and commodity rout.

The Singapore dollar is highly susceptible to a depreciation of the yuan, with the correlation between the United States dollar/Singapore dollar exchange rate and the U.S. dollar/yuan rate as high as around 88 per cent since the start of the year, economists said. To stay competitive against China, its trade partners – mostly in Asia – devalue as well to maintain a cheaper currency.

Late on Tuesday, China signalled it would delay the removal of a ban on the sales of cross holdings by large Chinese investors.

Michael Every, Rabobank’s Head of Markets Research, Asia-Pacific, said once Beijing had won the diplomatic triumph of getting the yuan included in the International Monetary Fund’s reserve currency basket in November, he expected policymakers would let it slip to cope with a slowing, deflationary economy.

You would have had to be hiding under a massive rock not to realise the Chinese economy is in trouble – all the indicators have been pointing to that for the last few years. Indian stocks slid to a four-month low, with Tata Motors, owner of JLR, and Tata Steel were the worst performers on the BSE Sensex during mid-day trade as the benchmark index tumbled 555 points in a fourth day of losses.

The greenback was also weighed down after the Federal Reserve’s December policy meeting minutes suggested further USA rate increases would be gradual because of concerns about persistently low inflation.

Japan’s Nikkei, which is in its worst start of year in 20 years, fell 1 per cent to a three-month low and is likely to post its biggest weekly fall since March 2011.