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FOREX-Yuan reaches record low in New Year sales

Published 06/01/2016, 08:31 pm
Updated 06/01/2016, 08:40 pm
© Reuters.  FOREX-Yuan reaches record low in New Year sales
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* Yuan slides further, offshore rates fall to record lows

* Yen near three-month high vs dollar, nine-month high vs euro

* Aussie, kiwi sink more than 1 percent on China worries

By Patrick Graham

LONDON, Jan 6 (Reuters) - China's yuan fell on Wednesday to its lowest since the opening of its offshore market in 2010, extending a slide that has unnerved global financial markets and sent currency investors rushing for the security of Japan's yen.

Big global banks forecast a 7 to 10 percent weakening of the yuan over the next 12 months, but has begun the year with a decline of almost 2.5 percent in just three days. That almost matches August's one-off devaluation, which led to a global stock market sell-off.

After the People's Bank of China again fixed its onshore rates for the yuan lower, less-regulated offshore rates for the currency fell more than 1 percent against the dollar to a record low of 6.7250 in London trade.

"Everyone has been taken by surprise by the scale of the volatility this week. Its all driven by China," said Gian Marco Salcioli, head of FX sales at Italy's Intesa Sanpaolo (MI:ISP) Banca IMI (L:IMI).

Intesa services big Italian and European exporters who are among those international investors most exposed to Chinese growth, demand and moves in the yuan. Salcioli said as yet few of them had moved to sell.

"This movement has not drawn participation," he said. "That leads me to think there may be a lot of potential selling from corporates to come.

"We were advising them last year that China could be drawn into this sort of currency war at some stage. China itself may not want to devalue too aggressively, given the structure of its economy, but if the currency is falling, then obviously investments onshore are in danger."

The Australian and New Zealand dollars, among those most sensitive to Chinese growth and markets, both sank more than 1 percent on the back of the yuan move. AUD=D4 NZD=D4

Adding to the mix was a possible nuclear test in North Korea, helping push the yen - historically one of investors' first choice in times of stress - to a near three-month high against the dollar.

The dollar fell half a percent to 118.51 yen. JPY= The euro fell 0.7 percent to 127.18 yen EURJPY=R and 0.2 percent to $1.0727. EUR=

Traders said markets needed clearer evidence of solid growth, particularly in the United States, to change the mood.

"If the upcoming U.S. job data disappoints investors, risk appetite will not come back for a while," said Takako Masai, head of market research at Shinsei Bank in Tokyo. The closely watched U.S. data is due on Friday.

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