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After The Chinese Devaluation, Who's Next?
Via Credit Agricole's Valentin Marenov,
In a surprise move overnight, the PBOC devalued the CNY by most on record, sending Asia G10 and EM currencies lower.
The selloff seems driven by concerns that the FX boost to the Chinese international competitiveness would affect other manufacturing exporters while pricier commodities could dampen Chinese demand for Australian and NZ exports.
On a broader level, the devaluation signals PBOC’s eagerness to join the global currency wars. With the competitive devaluation by various central banks gaining momentum but global trade slowing, the latest CNY devaluation could be seen as likely to force other central banks to consider similar measures before long. Yet another consideration here should be the impact of the PBOC actions on the capital outflows from China.
If the outflows were to intensify after the CNY tumble, the erosion of central bank’s FX reserves should continue and add to concerns about insufficient future sovereign demand for global assets. In turn this should continue to boost risk premia in the global bond and stock markets.
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One currency that so far has successfully weathered the storm has been JPY.
We doubt that JPY could decouple from the selloff in Asia FX for too long, however. The CNY devaluation comes on the back of disappointing trade data out of China (Japan’s main trading partner) and highlights that the external conditions for Japanese exporters could deteriorate further.
All this adds to the list of BoJ’s worries that already includes the stubbornly low Japanese inflation and casts doubt over the bank’s ability to achieve its 2% target anytime soon.
Against this background, potential disappointments from the Japanese machine orders release today and industrial production data tomorrow could extend the BoJ’s list of concerns with investors anxiously anticipating the Q2 GDP release next week.
While recent communication from Governor Kuroda did not seem to signal any desire for an imminent change in policy, we believe that the time the BoJ announces yet another QE is drawing near.
We subsequently see risks for USD/JPY on the upside from here.
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When will China put some hair on their asses and decouple the Yuan from the USD and let the YUAN float on the worlds currency markets ???
Until that happens,all the PBOC moves are just "smoke and mirrors".....
keep an eye on bond markets
Amen brother, serious stuff brewing right now.
.......don't worry about the peg, that will break all by itself.
Well, interest rates are low, global debt is higher than ever, and we now appear to be experiencing a growth shock transmitted via China, in particular, through world trade. There isn't much room for leveraging further growth. The next few months will be interesting.
I've got my Danish Kroner Longs in. Everyone at work thinks I'm nuts, but hey -- thats ok.
Wouldn't be the first time I've been wrong, but that figure gets smaller and smaller all the time.
http://www.reuters.com/article/2015/08/11/china-markets-yuan-usa-idUSW1N...
China's already scared shitless; I doubt any other nation would dare challenge Merika because they know, "We're Awesome!"
"When will China put some hair on their asses..."
I don't think the Chinese have much assial hair.
They won't float the Yuan because they would have problems every time they had to make a big print to cover their internal markets.....
Please elaborate for a dummy.
The answer is almost everybody. This is going to cause a survival response, especially in the EM currency market which is already in trouble.....
The French powers-that-be hope it will be everyone so that the EZ's No1 socialist basket case can stay under the radar blaming all others. In their many previous collapses there was nowhere to hide: Vive La Euro
Sure, blame the innocent French.
Innocent French is an oxymoron... ;-)
IF you can produce an example, we'll consider your proposition.
Some folks didn't see this coming...
https://miltonchurchill.wordpress.com/2015/08/11/currency-value-and-the-big-mac-index-farce/
We have come to the point that we cannot identify the players with a program. It's like a circus with 180 rings and 180 announcers. I'm lost and have come to the conclusion that unanchored fiat is akin to an electronic circuit with no ground wire. The electrons flow to where they want, not as designed.
Here's to searching for a ground, as in a stack.
Wherever the trouble shows up. Maybe Eurozone, Japan (always a good bet), the US (QE4Eva) who knows.
All I do know is that the governments of the world will do anything in their power to keep this debt bubble from popping. And that requires more debt.
If everyone on earth doubled the amounts of their currency in circulation, trade wouldn't suffer.
It just makes debts easier to service.
So, basically here we are.
pods
How is what Bejing did not just more of the same?
pods, agree but the key is that the orchestra has no conductor, thus is a fire drill of musicians warming up with a packed audience. The audience will race to the exits.
Currency in aggregate is in a constant state of devaluation what with inflation via money printing. All fiat currencies are withering away like the worthless paper they are.
So, investing really boils down to taking advantage of a relatively clunky race to the bottom for fiat currencies, all the while converting the winnings into tangible assets.
And people wonder why fine art is so expensive.
'Après moi, le déluge'...
I'm hearing the Chinese will soon depeg from the dollar. YIPEE....
U.S. Duh. This will be the excuse for QE4
Given the growing trade links between China and Russia keep an eye on the Russian Rouble.
In a surprise move overnight, the PBOC devalued the CNY by most on record
The yuan was devaluced 1.9%. That's a record? Yuan has never been devalued more than 1.9% before?
By fiat? No.
It's actually not true. It was devalued FAR more in 1994. I think that was a 30 or 40% move (if memory serves).
What's the big deal...foreign exchange markets devalue and revalue currencies every day...so China decides to go into the market and devalue its currency...what if hedge funds went into the market and revauled the yuan downward...would that make everyone feel better? you know it is good if market forces the action...but bad if government forces the action...
One is tempted to compare this to WalMart having a lower price of Fruit of the Loom boxer briefs than Target.
But there's a limit to how much central banks can devalue currencies to sell their exports.
They have to have something of value to pay for their imports.
How many trillion US dollars did you say China has in its sugar bowl?