China's yuan slumps to over 5-yr low on Brexit, central bank suspected of intervention

[SHANGHAI] China's yuan slumped to more than 5-year lows on Friday, prompting the central bank to intervene to support the currency, as turmoil swept global markets in the wake of Britain's vote to leave the European Union.

The yuan hit an intraday low of 6.6285 to the dollar at one point, down more than 0.7 per cent from Thursday's close of 6.5795 and its weakest since January 2011 and It later pared losses on suspected intervention and closed at 6.6140.

Traders said state-owned banks were offering dollar liquidity in the market during the day - a tactic the People's Bank of China (PBOC) often employs when intervening in the currency market.

"Our mother has come!" exclaimed a trader at another Chinese commercial bank in Shanghai, referring to the nickname for the PBOC.

Analysts said Britain's decision is unlikely to affect China's immediate economic outlook, but prolonged currency market volatility could add to downward pressure on the yuan and revive investors' fears of competitive global devaluations.

An economic slowdown or recession in the EU following Brexit could also weigh on one of China's biggest export markets.

"Brexit will be a total disaster in China's FX market," said one trader at a Chinese commercial bank in Shanghai, a comment that underscored wild gyrations in global markets that saw the sterling plunge and stocks put to the sword on Brexit anxiety.

The People's Bank of China set the midpoint rate at 6.5776 per dollar prior to the market open, 0.18 per cent weaker than the previous fix at 6.5658.

For the week, spot yuan ended 0.4 per cent down. The spot market officially closes at 4:30 pm, with the PBOC announcing the close. There's an evening session that lasts until 11:30 pm.

The offshore yuan was trading 0.33 per cent softer than the onshore spot at 6.6375 per dollar around mainland's official close.

REUTERS

For more coverage of the EU referendum, visit bt.sg/BrexiT