China has sparked fears of a global currency war after the People's Bank of China set the reference rate for its currency more than 1% lower against the US dollar yesterday, its third reduction in three days.
The central bank put the yuan's central parity rate at 6.4010 yuan for $US1, the China Foreign Exchange Trade System said, a drop of 1.11% from the previous day's 6.3306.
Other Asian economies have been put at a disadvantage, resulting in Indonesia's rupiah and Malaysia's ringgit hitting 17-year lows.
The New Zealand and Australian dollars fell to six-year lows against the US currency.
The International Monetary Fund said China's move to make the yuan more responsive to market forces appeared to be a welcome step and Beijing should aim for an effectively floating exchange rate within two to three years.
The Chinese Government had been lobbying the IMF to include the yuan in its basket of reserve currencies known as the SDR (special drawing rights) group, which it used to lend to sovereign borrowers.
That would enable more international use of the yuan.
The devaluation has been decried by United States politicians from both major parties as grasping for an unfair export advantage.
China's move has sent shock waves through Asian markets but the China central bank sought to calm fears, saying it was not the start of a sustained depreciation.
Craigs Investment Partners broker Chris Timms said currency wars were not a new phenomenon but he believed the latest move by the China central bank was to shore up its economy after a run of poor economic data.
''They are doing what any reserve bank would do - cutting interest rates and devaluing the currency to prop up the economy.
''The concern is the US is trying to normalise interest rates and wants to increase them. You have one giant economy putting rates up and another putting rates down.''
The Australian dollar had appreciated 4.3% against the yuan in the past four days, putting pressure on the dollar value of Australian exports to China such as iron ore and coal.
That was another blow to the already ailing resource sector, he said.
In early trading yesterday, Asian shares gained on hopes China would slow the fall of the yuan.
Still, traders remain cautious about how low the yuan might go.
Sources told Reuters some powerful voices in the Chinese Government were pushing for an even deeper devaluation to help China's struggling exporters.
