SINGAPORE - In a surprise move on Tuesday, China weakened the yuan's daily reference rate by a record 1.9 per cent, allowing depreciation to combat a slump in exports, sending the Singapore dollar and other regional currencies sliding.
The yuan midpoint dropped an unprecedented 1.86 per cent to 6.2298 per US dollar on Tuesday, compared with Monday's 6.1162, heading for its biggest one-day drop, Reuters reported.
The spot market opened at 6.2530 per dollar and was changing hands at 6.3015 at 0220 GMT, the weakest since September 2012. At present, the spot rate is allowed to trade with a range of 2 per cent above or below the official fixing on any given day. The offshore yuan was trading 0.02 per cent lower from the onshore spot at 6.303 per dollar.
The Singapore currency fell sharply against the US dollar to levels last seen in March when markets opened on Tuesday morning. One US dollar could buy about $1.39 Singapore dollars as at 10am, from about $1.38 at the previous close.
The Singdollar slide also came on the back of the Ministry of Trade and Industry narrowing its growth forecast for the Singapore economy this year, amid slowing growth in China and an uneven global economic recovery.
The Singapore economy is now expected to grow between 2 and 2.5 per cent this year, from an earlier forecast of 2 to 4 per cent.
China's surprise cut in the reference rate also triggered sharp declines in the currencies of its key trading partners.
The Aussie, often used as a liquid proxy for the yuan, plunged 1 per cent to 73.39 U.S. cents as of 11 a.m. in Tokyo, while the New Zealand currency fell 0.9 per cent to 65.58 U.S. cents.
The Aussie and the kiwi are each down more than 10 per cent this year against the greenback as weakening Chinese demand drives down prices for their commodity exports.
The South Korean won was down 1 per cent at 1,174.3 to the dollar as of 0251 GMT. The won touched a morning high of 1,155.7 and sharply fell to as low as 1,177.4, the lowest since June, 2012.
Other currencies in the region also lost ground to the US dollar as investors reasoned they would have to ease to stay competitive with China.
The ringgit retreated 0.3 per cent for a fifth day of losses to 3.9405 per US dollar as of 10:32 a.m. in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It earlier fell to 3.9412, the weakest level since 1998.
The Indonesian rupiah fell 0.05 per cent to 13,555 to reach its lowest level since July 1998. The rupiah has fallen nearly 9 per cent so far this year, the second-worst performer in emerging Asia.
Monday's reference rate increase was a one-time adjustment, the PBOC said in a statement, adding that it will strengthen the market's role in the fixing and promote the convergence of the onshore and offshore rates. It said also that it will keep the yuan stable at a reasonable level. The yuan's effective exchange rate is stronger than that of other currencies, which is a deviation from market expectations, the central bank said.
The comments come after the PBOC said earlier Tuesday that a strong yuan puts pressure on exports. China's overseas shipments fell 8.3 per cent from a year earlier in dollar terms in July, well below the estimate for a 1.5 per cent decline in a Bloomberg survey.
The PBOC has kept the yuan broadly stable against the dollar since March and had been tightening its grip on the exchange rate as it encourages greater global usage in a push for official reserve status at the International Monetary Fund. The currency's closing levels in Shanghai were restricted to 6.2096 or 6.2097 versus the dollar for more than a week and daily moves were a maximum 0.01 per cent over the past month.