China guided its yuan currency higher on Monday, and offshore it surged against the dollar, spurred by what traders called aggressive intervention by Beijing, although Chinese stocks tumbled again as doubts persisted over policymakers’ intent.
Perceived mis-steps by China’s authorities have stoked concerns in global markets that Beijing might lose its grip on economic policy, even as the country looks set to post its slowest growth in 25 years.
A 1.5 percent depreciation in the yuan since the start of 2016, following a 4.7 percent weakening in 2015, had raised alarm among some trade rivals that China was risking a “currency war” of competitive devaluations.
The yuan’s rally could help temper those fears, but it failed to stop investors selling Chinese shares.
The Shanghai Composite Index and the CSI300 index ended down more than 5 percent after a 10 percent plunge last week that triggered a global sell-off of riskier assets.
Tapas Strickland, an economist at National Australia Bank, said “indecisiveness and lack of transparency” was exacerbating market uncertainty.
“Understandably, amidst this global markets are selling Chinese policymakers’ ability to control their economy.”
The People’s Bank of China set the mid-point for the yuan at 6.5626 per dollar, firmer than Friday’s fix and substantially stronger than the spot yuan’s previous unofficial close of 6.5938. The yuan is allowed to stray no more than 2 percent either side of the mid-point.
The PBOC had also set a stronger daily guidance rate for the yuan on Friday, following a sequence of eight weaker fixes that culminated in the biggest one-day drop in five months last Thursday.
“Different signals about FX policy have wrong-footed market participants, and we are wary in believing that an immediate calmness will soon emerge,” wrote Paul Mackel, head of emerging markets FX research at HSBC, in a note.
“In this context, we expect yuan volatility to remain high, while depreciation pressures are likely to remain strong.”