Renewed volatility in China, following weaker-than-expected economic data and lower PBoC guidance for Yuan rattled stock markets. Sharp declines in Chinese equities and other Asian bourses followed weaker Chinese markets on concerns of slowdown in China. However, there are indications that China is likely to temporarily slow down the pace of currency depreciation, after having allowed CNY fixings to fall in a near one-way fashion by 4% since early November.

A PBoC statement on Thursday last week said that "the current conditions are supportive of a relatively stable RMB exchange rate against a basket of currencies" and "there is not a basis for the RMB to devalue continuously." It also mentioned that the PBoC "is capable of maintaining the RMB exchange rate basically stable at an adaptive and equilibrium level against those speculators."

On Friday, the PBoC announced a USD/CNY fix that is substantially below the previous days' spot closing rate (-303bp). Today, the central bank set the mid-point for the yuan at 6.5626 per dollar higher for a second day. The stock market rout will probably lead authorities to further stabilize CNY fixings in coming weeks in order to prevent further exacerbating negative market sentiments.

"Over the medium term, given our strong USD view globally and weak China growth prospects, we continue to see further USDCNY adjustment as China has shifted focus to NEER stability. We expect the cross to rise to 6.90 by year-end." says Barclays in a research note to its clients.