China's yuan strengthens for second day as Brexit turmoil abates

[HONG KONG] The yuan advanced for a second day as Asian markets rallied on optimism global leaders will take steps to limit the panic selling ignited by last week's Brexit vote.

China will make efforts to ensure stability in the nation's financial and capital markets after Britain's decision to leave the European Union, Premier Li Keqiang said at the World Economic Forum in Tianjin Tuesday.

South Korea said it is planning a package of fiscal stimulus, while the Bank of Japan said more funds can be injected into the financial system if needed.

The Chinese currency rose 0.08 per cent to 6.6459 per US dollar as of 9:38 am in Shanghai, according to China Foreign Exchange Trade System prices. The exchange rate plunged 1.3 per cent in the three days through Monday, the biggest loss since a yuan devaluation rattled global markets in August last year.

"As long as the People's Bank of China stabilises expectations, it won't spur any panicky dollar buying," said Tim Condon, head of Asian research at ING Groep NV in Singapore.

"It is monitoring the situation like everybody else."

The yuan traded in Hong Kong's overseas market advanced 0.1 per cent to 6.6775 per US dollar after the PBOC strengthened the onshore currency's daily reference rate by 0.3 per cent.

A Bloomberg replica of a 13-currency index tracked by the PBOC rose for the first time since the Brexit vote, after dropping to a 20-month low on Tuesday.

China's central bank tried to soothe investor nerves late yesterday, saying that the yuan remains stable against the trade-weighted basket of currencies and that policy makers will stick to their current mechanism for determining its exchange rate.

The US dollar's recent resurgence is forcing a deviation from a strategy that China followed for much of this year, where authorities maintained limited gains versus the greenback to buoy confidence in the yuan's stability, while guiding depreciation against the currencies of its trading partners to help bolster exports.

Some lenders are taking another look at their projections for the yuan. Bank of America Corp sees the currency dropping about 5.1 per cent to 7 per US dollar at the end of the year, compared with a previous estimate of 6.9, as China seeks greater export competitiveness. Australia & New Zealand Banking Group Ltd said its 6.65 projection is under review, while UBS Group AG predicts the yuan will fall to 6.8 faster than it previously expected as China cuts reserve requirements to ease funding conditions.

BLOOMBERG

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