LONDON: Offshore-traded yuan hit two-week lows on Friday and volatility rose on weak Chinese data and authorities' plans to liberalise currency trading while other emerging currencies plumbed new multi-month and multi-year lows.
Shares worldwide skidded with the broader emerging MSCI index down almost 1 percent as data showing Chinese manufacturing at 15-month lows rekindled concerns for regional exports and economic growth.
Chinese mainland equities slipped 0.6 percent after a six-day run of gains .
China also said it would widen "two-way fluctuation" in the yuan to support trade, though it gave no details on timing. That, along with the weak data, sent offshore yuan 0.12 percent lower while the onshore yuan was reportedly held steady by state banks' dollar sales.
One-month yuan-dollar volatility, a measure of expected swings in a currency, rose to the highest in a week while one-year yuan forwards priced a slight weakening.
Maintaining stability of the yuan against the dollar would be a priority for the central bank, Yang Zhao, China chief economist at Nomura told investors in a conference call. "We need to understand whether (the Chinese central bank) wants to see a sharp depreciation or appreciation. I don't think either is a good solution for China at the moment," said Yang.
"They have tools to maintain stability, first they have huge FX reserves, they can use the fixing rate to signal their policy preference to the market." Neighbouring currencies also fell, with the Korean won, Thai baht and Indonesian rupiah at the lowest in three, six and 17-years respectively.
Emerging European currencies also lost ground against the dollar, with the Russian rouble down 0.7 percent to a four-month low while the Turkish lira also fell 0.5 percent.
The rand slipped 0.3 percent to its weakest in two weeks, as a quarter point rate rise on Thursday was overshadowed by concerns over China, a major importer of South African metals.
"We do not regard a rate hike as being particularly supportive for the rand given that it is taking place in the context of a rather weak economy," TD Securities said, predicting another rise in September if an expected US rate rise weakened the rand further. In stock markets, dollar-denominated shares in Moscow chalked up some of the biggest losses, down 1.6 percent and on track for the third straight session in the red, while bourses in Johannesburg, Warsaw and Prague all traded lower.
Stocks in Turkey and Hungary proved the exception, both trading around 0.3 percent higher. In Nigeria, central bank policy makers were expected to publish their decision at the end of a three day meeting, with markets widely expecting no change in interest rates.
Nigeria has been under increasing pressure to devalue the naira, which the central bank pegged on Thursday at 197 to the dollar but which traded on the parallel market at 243.
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