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Now The Bad News: This Is How Much More Downside Is Left For China's Currency
This morning's Chinese record currency devaluation, in which the Yuan was devalued by 1.9% against the USD may sound like a lot... until one considers that the Chinese currency has been pegged to the US dollar, which as reported extensively over the past year, has exploded higher not so much due to the strength of the US economy but due to expectations of what may be the Fed's biggest mistake in recent years: a rate hike which will assure the US economy's tailspin into recession.
In effect what the PBOC did earlier today is inform the world it would no longer stay pegged to a Fed whose monetary intentions are complete lunacy for a mercantilist exporter, one whose economy is getting crushed as a result of the tight linkage between the USD and CNY, and even if it means massive capital flight as the opportunity cost, so be it. Furthermore, considering that the CNY was until recently the second most expensive currency according to Barclays, it is amazing it took Beijing this long to pull the plug.

So how much more devaluation is in store for the CNY? Well, if one believes the PBOC, today's intervention was a "one off." The problem is that just like every central bank in modern history, the Chinese central bank is lying.
Here is Goldman with a quick and dirty observation of what one can expect:
According to the PBOC press release, the unexpected change in fixing mechanism today was in response to the prospective Fed liftoff, which has the potential to cause further strengthening in the USD and capital flow volatility. The CNY on a trade weighted basis has appreciated sharply alongside the USD strength, and is still about 15% higher than a year ago after today’s move (Exhibit 1). However, we think a FX move of today’s scale, while significant by the standard of CNY’s historical movement, is unlikely to give a strong boost to growth.
In other words, today's "devaluation" is a tiny pinprick in the grand scheme of the CNY's revaluation since the USD surge started in 2014. This becomes especially apparent when one sees the impact of the CNY's peg to the soaring USD, and last night's shocking announcement, in context.
So to answer how much more downside in the CNY there is, now that the PBOC has thrown in the towel and will aggressively devalue the currency, the answer is somewhere between 10 and 15% more if China wishes to regain its competitive status as of just last summer!
Which means an unmitigated disaster for US, European and Asian, exporters whose only lifeline was China's FX patience.
Patience, which just ran out.
And for all those wondering why stocks are red today, the answer is simple: in a zero-sum trade world, the market now demands much more QE from the ECB, BOJ and, soon enough, the Fed itself because the deflationary export deluge which China just unleashed will send the 10Y solidly below 2% in the coming days unless some "western" central bank somewhere does or says something to remind the market who is in charge..
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Please keep devaluing, i need more lead based bullshit for my downtown loft.
You can blind fold them with dental floss
Change China to Gold and read this article again.
PBOC chairman, Lei Ying Lo, screamed "Chow Mai Dong" , prior to going on vacation.
His Secretary, Wai Yu Hai Ding, is unsure why the Yuan is plummeting.
Reserve ratio charts are now Captioned "Lao Zi" or just one step up from the lowest rating
of "Lin Ching".
Chinese economy = Wai U Shao Wong
How much did phyzz gold and silver increase in terms of yuan after this happened?
+ .44% at 12:00 noon.
I guess we know where you'll be having lunch.
If/when China or any country hits the currency war wall....whey will look to their only alternative.....real War.
What are you doing here? Eveyone voted for you to shut up.
I'm sorry for your losses.
But if they keep devaluing, how are they gonna buy all those Chevys?
This is all an orchestrated clown show where nations petition the secret round table groups (think X- Files) to allow them to devalue their currencies. Competitive devaluation.
This is not a currency war. This shit is all orchestrated, save for some tin pot dictators in Africa or S. America.
China is about to implode due to leverage. They petition the owners and they allow them to devalue, thus keeping the system going.
Think of it as having gas. Some times you lean on the left cheek to get one out, and sometimes you shift to the right one. Anything to relieve some of the pressure.
pods
The Chinese government is not interested in having a "reserve currency", they never have been. They are interested in total world domination, period. Being allowed to to whatever the fuck you want to your own currency and people has distinct advantages in this regard.
The Chinese like other sheeple will take all the bullshit if they see things improving overall, the 1bn might become restless when they see the shit they've worked for turn to dust.
No question the US has problems but I find it interesting that we are talking about how much downside the yuan has considering how many in alt financial media have been calling for just the opposite. The US will enter the currency war soon enough, current events are just interesting.
Gee...another awesome blogger with an awesome blog advocating his awesomeness in all things financial. Great. Thanks. Got it.
A monetary steel cage death match between the two largest economy's, time to get out the popcorn and tequila......
Yep, as I said here before.. Massive epic biblical crushing deflationary implosion ahead!
And there's not enough QE left in all the central banks now to do anything about it.
"One Off"
My thoughts when I read that this morning..................yea ................right
The yuan is worthless, but then again, so is the dollar.
Exactly. And the point for those who issue these currencies (banks) is to keep their system going. So when pressure builds in one area, you relieve pressure.
Competitive devaluation FTW.
pods
Come on, you 1.3 billion Chinese - Buy gold and silver with your fast depreciating Yuan before you have to pay 10% to 15% more.
What the world will get is another $11 trillion in QE and the countries with ZIRP and NIRP will double from about 15 to about 30 in just the next two years.
Since ’07, $11 trillion of global QE, $57 trillion of more debthttp://investmentwatchblog.com/since-07-11-trillion-of-global-qe-57-tril...
Now that's good advice. We also know why China reported buying gold before the yuan devaluation. Buying gold with a depreciating currency looks desperate.
1.3 Bullion Chinese.
Rut Row
Remember all those US politicians that wanted China to stop their "currency manipulation" and depeg? Well they got they're wish. Let's see how the US economy performs now.
I think this is great!
Stocks, realestate, and now their currency in the toilet.
On top of that rejection from the IMF SDR..
Time to buy more gold China.. Not much left.
I think this is great!
Stocks, realestate, and now their currency in the toilet.
On top of that rejection from the IMF SDR..
Time to buy more gold China.. Not much left.
Treasuries. The Chinese will run to treasuries. OK. Now do you understand? LOL
so the under reporting of gold was meant to help soften the Yuan, didn't work so....
So the price of gold (and silver, and copper?) in yuan must be headed for the moon.
The gold price in US $ is certainly moving back up.
Come on people, we all know fiat currencies are just a tool to keep the sheeple on the conveyor belt - driving the wheels along. The dog and pony show must get ever more complex and immersive with more Ishit, more Kardashians and more gibberish to keep those people out there doing their menial jobs day in, day out...
All this deflation is going to be great for over indebted western nations.
methinks you may be underestimating the magnitude of the eventual move. I could see it going all the way back to 2003 or even 1999 levels.
"...what the PBOC did earlier today is inform the world it would no longer stay pegged to a Fed whose monetary intentions are complete lunacy..."? I don't know about this...To me, this sounds like a concerted effort by the PBOC and the Fed to keep US Treasuries from getting puked....but, hey, I have been wrong before...
you're not wrong, on the one-off.
The rest, we will know soon.
Help me here. This is huge, right?
So what happens when a pound of television is less than a pound of chicken?
Eat moar tv.
The yuan was devaluced only 1.9%. All the effects are psychological for the time being. There will be little real effects to the economy if ther is no more action from POBC.
Thanks for that input, Mr. Bernake.
Remember the Swiss Franc and the Euro?
And just in time for China to start selling gold on its own market next month!
Wi wei tu lo.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
China's also got the Hong Kong dollar to hedge with.
Holy fuckin duplicate posts. Sorry.
"Donger need food!"
Inscrutable, those Chinese.
Will be interesting to see the impact on the North American housing market. As in Vancouver and San Francisco.
wrg
So the answer to the Dow's 200 point fall was the 1.9% devaluation of the Chinese yuan...so if China needs to be more competitive at a 15% devaluation..this is approx 7 times greater than today's devaluation... which means another 1400 point Dow drop..yikes...batten down the hatches...