The offshore yuan's exchange rate gained more than 300 basis points in about 40 minutes on Wednesday afternoon, after slumping 600 basis points in three days to 6.6 against the U.S. dollar - the lowest level in nearly five years.
Experts have noted that it is likely that the Chinese government stepped in to curb the falling trend.
Xi Junyang, a professor with the Department of Finance at the Shanghai University of Finance and Economics, told the Global Times on Wednesday that the government might have taken some measures, such as asking overseas Chinese banks to increase holdings of the yuan and sell the US dollar, to lift the yuan's offshore exchange rate.
Reuters reported on Wednesday that the People's Bank of China (PBC), China's central bank, has suspended at least three foreign banks from conducting foreign exchange business until the end of March 2016, citing three anonymous sources. Included among the suspended business are "some services related to cross-border, onshore and offshore businesses," Reuters said.
According to Xi, the offshore yuan is now considered more reflective of the real market demand for the currency, and its fluctuation often influences the yuan's onshore exchange rates to a great extent. Therefore, for the sake of stability, the government does not want the yuan's offshore exchange rate to be too volatile.
Xi also noted that the government does not want the gap between the yuan's onshore and offshore exchange rates to widen too much, in order to avoid any large-scale speculative capital flow.
The offshore yuan's appreciation came after its exchange rate dropped for three days and reached a five-year low on Wednesday afternoon.
"The US dollar is strong, while the exchange rates of many currencies in developing countries have dropped. This has caused many overseas investors to bet that the Chinese currency would depreciate further. That's why they decided to dump the yuan recently," Xi commented.
The yuan's onshore exchange rate also slumped 0.08 percent to the lowest level since May 2011 on Wednesday. The PBC adjusted the yuan's central parity rate against the US dollar to 1: 6.489, the lowest level since the Chinese government adjusted its central parity exchange rate system on August 12.
Tan Yaling, head of the China Forex Investment Research Institute, told the Global Times on Wednesday that the yuan's recent depreciation is "reasonable."
"First, China's real economy is still facing downward pressure, and that doesn't support the yuan becoming stronger against the US dollar," she noted.
Tan also pointed out that the yuan had been appreciating for a long period of time, going up by nearly 40 percent.
"Considering that fact, the yuan's depreciation this year has been entirely reasonable," she said.
It is the Chinese government's principle to stabilize both the onshore and offshore exchange rates of the yuan, Tan said.
Tan also estimated that the yuan's exchange rate would further drop against the US dollar in 2016, as the real Chinese economy is likely to slip further.
