Bazookas out as China’s yuan devaluation sparks fears of regional currency war
Beijing's sharpest yuan move in more than 20 years seen as an attempt to make exports more competitive against regional rivals
With a dramatic devaluation of the yuan yesterday, Beijing brought out the bazookas in a move that might escalate a regional currency war that it had until now chosen to avoid.
The central bank shocked the markets by devaluing the yuan by the most in a day in more than 20 years, setting the daily fixing - the midpoint for the yuan's value against the US dollar - 1.87 per cent lower than Monday's level.
The instant devaluation would restore its competitiveness vis-à-vis other Asian currencies such as the Japanese yen and the Korean won that have been weakening over the past year.
"Don't think for a moment that the region's activist monetary authorities will absorb this Chinese shift placidly, with the yuan representing a large weight in each and every reference basket," Westpac economist Huw McKay said.
Signs of an imminent race to the bottom were evident yesterday as the won fell to its weakest level since June 2012, while the Taiwan dollar dropped to its lowest level in more than five years.
The Australian dollar saw its biggest single-day decline in over seven months and the Indian rupee lost the most in two months.
