China guides yuan higher for first time since Tuesday's shock devaluation

China's central bank on Friday strengthened the yuan against the US dollar by 0.05 per cent, ending three days of falls.
China's central bank on Friday strengthened the yuan against the US dollar by 0.05 per cent, ending three days of falls. PHOTO: AFP

SHANGHAI (AFP, BLOOMBERG) - China's central bank on Friday strengthened the yuan currency against the US dollar by 0.05 per cent, the national foreign exchange market said, ending three days of falls after a surprise devaluation.

The daily reference rate was set at 6.3975 yuan to US$1.0, up from 6.4010 the previous day, the China Foreign Exchange Trade System said. The rate was also slightly higher than Thursday's close of 6.3982 yuan.

The yuan stabilized and most Asian stocks climbed after the move y the People's Bank of China (PBOC). The yuan was little changed at 6.3985 to the US dollar in offshore trading by 9:38 am in Hong Kong, after initially rising 0.4 per cent to 6.4437.

China has reduced the rate around which its currency can trade by about 3.7 per cent this week.

The MSCI Asia Pacific Index climbed 0.1 per cent and US index futures fluctuated. Oil fell 0.3 per cent.

The stronger fixing for the yuan came after the PBOC reassured financial markets by pledging on Thusrday to seek a stable currency after a shock devaluation of nearly two per cent on Tuesday.

The cut, and two subsequent reductions, sent global financial markets into a tailspin as it raised questions over the health of the world's second-largest economy and fears of a possible currency war.

Beijing said the move was the result of switching to a more market-oriented method of calculating the daily reference rate which sets the value of the yuan, also known as the renminbi (RMB). Previously, authorities based the rate on a poll of market-makers, but will now also take into account the previous day's close, foreign exchange supply and demand and the rates of major currencies.

The currency is still only allowed to fluctuate up or down two per cent on either side of the reference rate.