OREANDA-NEWS.  In a surprise move, the People Bank of China (PBOC) lowered the RMB’s daily reference rate by a record 1.9% on 11 August. The Chinese central bank has set the new midpoint at 6.2298 per US dollar, down from 6.1162 on Monday.

The move came amid rumours that the RMB’s trading band will be further widened for the first time since March 2014. Presently, the RMB is allowed to fluctuate 2% on either side of the daily rate on the domestic foreign exchange market.

The surprise devaluation prompted a 2.79% move in the offshore RMB (CNH) market, and spurred record trading activity in the SGX USD/CNH futures with 6,177 contracts traded (approximately US\\$618 million in notional value) on 12 August.

Trading in SGX USD/CNH futures has soared in recent months, buoyed by an expanded pool of market makers including Bank of China and other financial institutions. Trading volumes surged twofold month-on-month to a record 20,334 contracts exchanged hands (approximately US\\$2 billion in notional value traded) for the month of July, making SGX USD/CNH futures the most actively traded offshore RMB futures product globally.

Outstanding open interest has grown in tandem to a new record high of 11,179 contracts or (approximately US\\$1.1 billion in notional value) on 12 August.

Weak trade data out of China, released over the weekend prompted the PBOC to unveil the surprise announcement.

China’s exports had been slowing since March due to anaemic global growth and the depreciating currencies of trade competitors. July exports fell 8.3% year-on-year.

In a statement, the Chinese central bank said that it had changed the way it calculated the currency's daily midpoint against the US dollar, now taking the midpoint from market-makers quotes and the previous day's closing price.

A weaker RMB could boost exports and growth and could well rescue an ailing stock market. On the flip side, it could prompt capital to leave the country in search of higher gains.

China stock markets lost over 30% of its value in the past 2 months with trillions wiped out as investors surrendered positions over worsening economic conditions and concerns of over-stretched valuations.

Rescue measures including a ban on short selling and initial public offerings, forced purchases of shares by state-owned investors, a ban on sales by leading shareholders as well as direct and indirect credit support from the various banks to China Securities Finance Corp were rolled out by Beijing to support the market.

Amid elevated volatility, the SGX FTSE China A50 Futures chalked up a monthly record volume of 14,149,600 contracts, which translated to an average daily volume of 615,200 contracts or approximately US\\$6.5 billion in notional value in July.

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