HONG KONG (BLOOMBERG) - The yuan dropped the most in two decades, sparking a tumble in Asian currencies and commodities after China devalued its exchange rate to combat an economic slowdown.
The yuan dropped 1.9 per cent to 6.3270 per US dollar as of 1:25 p.m. in Hong Kong, after the central bank cut its reference rate by a record and said market forces will play a greater role.
It was the biggest one-day loss since China unified official and market exchange rates in 1994.
The Singapore dollar fell the most since 2011, trading down 1.4 per cent to 1.3995 to the US dollar at around 1:45pm.
The Bloomberg JPMorgan Asia Dollar Index sank to the lowest level since 2009, while a gauge of commodities lost 0.7 per cent. The Hang Seng China Enterprises Index advanced 1.3 per cent.
China's devaluation follows economic reports this month showing a plunge in exports, weaker-than-estimated manufacturing and slowing credit growth. Policy makers in the biggest emerging market are trying to balance calls for economic stimulus against long-term goals of increasing the role of markets and cutting back on debt-fueled investment.
"Policy makers and the central bank are still very concerned about the overall economic-growth momentum," said Qian Wang, Hong Kong-based senior economist for Asia Pacific at Vangaurd Group Inc. "China has suffered because of the strengthening of the currency."
The People's Bank of China cut its daily reference rate for the currency by a record 1.9 per cent. The change was a one-time adjustment, the central bank said in a statement, adding that it plans to keep the yuan stable at a "reasonable" level and will strengthen the market's role in determining the fixing.
The range is calculated from a central "reference rate" each day. Before Tuesday, Chinese officials said they based the fixing on a poll of market-makers, but the PBoC's move means it will now also take into account the previous day's close and other factors.
The devaluation triggered declines of at least 1 per cent in the currencies of Australia and South Korea. Criticism may be muted given the recent history of competitive devaluations globally, according to Bloomberg Economics analysts Tom Orlik and Fielding Chen.
The yuan slid 2.2 per cent in offshore trading in Hong Kong, trading at the weakest level since September 2012.
The MSCI Asia Pacific Index dropped 0.6 per cent, while futures on the Standard & Poor's 500 Index declined 0.4 per cent. The Shanghai Composite Index was little changed as airlines sank on concern a weaker yuan will increase the burden of their dollar-denominated debt and hurt earnings.
The Bloomberg Commodity Index lost 0.6 per cent after surging 2.4 per cent Monday. Gold for immediate delivery retreated 0.5 per cent to US$1,099.30 an ounce Tuesday, while silver, platinum and palladium also weakened. Copper, nickel, lead, tin and aluminum dropped at least 1 per cent in London.
"The depreciated yuan will reduce resources imports by China," said Ren Gang, Vice General Manager of private trading house Qingdao Youbangyuan Trading Co., in Shanghai. "That's bearish news for global commodities, but could help China squeeze its capacity glut."
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 of its most-traded peers, advanced 0.5 per cent.