FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, suggests that the main event overnight has been another sharp decline in the Chinese equity market which has fallen by over 7% bringing an early end to trading for the second day of this week. Key Quotes “The circuit breaker was triggered after thirty minutes resulting reportedly in the shortest trading day in its 25-year history. The fresh plunge in the Chinese equity market has been linked in part to heightened uncertainty over domestic currency policy after renminbi has accelerated this week. The onshore renminbi has continued to weaken overnight lifting the USD/CNY rate to within touching distance of the 6.6000-level. In contrast, the offshore renminbi has strengthened modestly supported reportedly by intervention after the spread between the offshore and onshore rates reached a record yesterday. The PBoC has also released a statement overnight in support of the renminbi stating that “some speculative forces are trying to reap gains from playing the renminbi”. The PBoC stated that “faced with such speculative forces, it has the ability to keep the renminbi stable at a reasonable equilibrium”. The speculative forces are seen as having “nothing to do with China’s real economy” and have only caused “abnormal fluctuations in the renminbi” It has been reported as well that the PBoC is considering new measures to prevent high renminbi volatility in the short-term according to people familiar with the matter. The PBoC will reportedly continue to intervene in the foreign exchange market and is considering measures that aim to restrict arbitrage between the offshore and onshore rates and speculative trades. Nevertheless investors are still likely to remain in a heightened state of uncertainty over the outlook for the renminbi in the near-term fearing a larger devaluation in the year ahead after recent accelerated weakness. The yen continues to be the main beneficiary from the current period of risk aversion while emerging market and commodity related currencies continue to remain under downward pressure. The ongoing slide in the price of crude oil to new cyclical lows is also reinforcing downward pressure on commodity related currencies as well.” For more information, read our latest forex news.