China weakens yuan fixing by most since August devaluation as US dollar surges

A bank clerk counts Chinese one hundred Yuan banknotes in Beijing, China, on April 13.
A bank clerk counts Chinese one hundred Yuan banknotes in Beijing, China, on April 13. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - China responded to a surge in the US dollar by weakening its currency fixing the most since the aftermath of August's devaluation.

The People's Bank of China set the reference rate 0.9 per cent weaker to 6.6375 per dollar. A gauge of the greenback's strength climbed 1.8 per cent on Friday, the most since 2011 as the UK's vote to exit the European Union spurred turmoil in global financial markets. The offshore yuan dropped 0.3 per cent at 9:20 am in Hong Kong.

"There will be further volatility to come," Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore, said before the reference rate was announced. "Today's fixing will be weak, the question is how weak."

The fixing had become more predictable since early February after the PBOC pledged greater transparency and the yuan increasingly tracked movements in the dollar against major currencies. The fixing - from which the spot rate can diverge a maximum 2 per cent - is set using the previous day's onshore close, overnight moves in major currencies, as well as market demand and supply.

Traders worldwide became obsessed with the fixing in January after a sudden weakening fueled fears of a devaluation and triggered global market turmoil. During the subsequent three months, the central bank adopted a more market-based system to set the reference rate and said the basket would play a bigger role.