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Yuantervention: PBOC Devalues The Yuan, Then Scramble To Support It In The Open Market
As we noted earlier, the most surprising development out of this mornings repeat rout in the Chinese currency was not that it happened: after all as we laid yesterday out there is at least 10-15% in immediate downside left for the Yuan...
... but that shortly before the market close, China's central bank intervened via "at least one major Chinese state-owned bank sold large amount of dollar shortly before market closed, prompting rapid gain in yuan, according to two traders at onshore banks" Bloomberg reported adding that at least one state bank continuously sold dollar until USD/CNY reached around 6.38.
We bring this up because while we noted it when it happened just after 3am local time...
Yuantervention
— zerohedge (@zerohedge) August 12, 2015
...it is now being observed by the mass medias such as the WSJ:
China intervened on Wednesday to prop up the yuan in the last minutes of trading, according to people familiar with the matter, in an apparent attempt to prevent an excessive fall in the currency as the authorities seek to give the market more say in setting the exchange rate.
The PBOC ... instructed state-owned Chinese banks to sell dollars on its behalf in the last 15 minutes of Wednesday’s trading, according to the people. The result: The yuan jumped about 1% in value against the dollar in the final moments of trading, bringing it to a level where one dollar would buy 6.3870 yuan.
This in turn has led to a bounce in risk assets and bond yields, and a reversal in the selloff in some Asian assets on hope that the PBOC is back in the picture. This is ironic because far from suggesting the PBOC is "in control", it merely shows just how confused and ad hoc this yuantervention really is: first the PBOC shocks the market with the two biggest devaluations in history, then it proceeds to intervene and push the Yuan far stronger, whiplashing all traders in the process.
But the biggest problem for the PBOC is that interventions or not, the CNY has a long way to drop: indeed, we said 10-15% more yesterday, and now Reuters confirms as much:
China's move to devalue its currency reflects a growing clamour within government circles for a weaker yuan to help struggling exporters, ensuring the central bank remains under pressure to drag it down further in the months ahead, sources said.
The yuan has fallen almost 4 percent in two days since the central bank announced the devaluation on Tuesday, but sources involved in the policy-making process said powerful voices inside the government were pushing for it to go still lower.
Their comments, which offer a rare insight into the argument going on behind the scenes in Beijing, suggest there is pressure for an overall devaluation of almost 10 percent.
"There have been internal calls for the exchange rate to be more flexible, or depreciated appropriately, to help stabilise external demand and growth," said a senior economist at a government think-tank that advises policy-makers in Beijing.
"I think yuan deprecation within 10 percent will be manageable. There should be enough depreciation, otherwise it won't be able to stimulate exports."
* * *
"Exporters face very big pressure, and China's economy also faces very big downward pressure," said a researcher at the commerce ministry's own think-tank, which recommended earlier this year that the government should unshackle the yuan.
"The yuan depreciated only slightly versus the dollar, but it has gained sharply against other currencies. China's economy and trade are no longer strong; why should the yuan be strong?"
We wish the PBOC the best of luck as it tries to channel the Yuan to a "just right" level without blowing up countless carry trading freeloaders in the process, and pushing FX volatility off the charts just as it did with its "bull in a china store" approach to "fixing" the bursting stock market bubble. It will need it.
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Ok. That confirms it. The PBoC is terrified. [Alternatively I have no fucking clue what's going on].
Basically.....it's what the hell ever.
Isn't it amazing how Traders know that a large Chinese Bank sold dollars to support the Yuan, yet no one can tell you who sold 2.7 billion dollars of gold on a Sunday night just before 3am, causing 2 flash crashes?
http://www.zerohedge.com/news/2015-07-19/gold-precious-metals-flash-cras...
Obvious FED intervention using proxy bullion banks.
Fed+Ecb+Boj = Bis
I totally believe the Chinese want a market-based Yuan. Their actions clearly demonstrate they are moving in this direction. Devaluing their peg, and then manipulating it stronger through the "market".
Just another communist shit-hole figuring out it's a lot harder to centrally plan a large economy than they throught.
Communist shitholes have no middle class generally. In china that means they have no one to consume the goods that they produce. Take a look at the world, there is no industrial construction, steel and machine tools industry is dead, I am typing on a 7 year oldish laptop that still works great, no reason to upgrade, Cell phones are mature, even two model skips are insignificant, Large screen TVs are commodity items, the clothing industry has started to leave china for cheaper locations.... and no one in their right mind would get on a chinese made airplane....
The ONLY thing saving China right now is the US's efforts with OPEC to crush Putin with low oil prices. If we had $100 / barrel oil China would be totally fucked.
If you think that China is panicking and entering devaluation wars, then their "intervention" today looks very odd and confusing. ZH, wall street, and the mainstream media are together on this one and believe this to be the case.
If you simply read what China is saying and watch what they are doing... they are selling US Treasuries, decreasing FX reserves organically (via devaluation of EUR and other non-USD reserve line items), and decreasing FX reserves actively (selling USD to buy back CNY). In this context, it's quite clear that all the "fix" is is simply a rough guideline to the USDCNY level, which is being used as an open-mouth-operation tool. The economic link to the fix is only binding when spot trades near the 2% maximum variation; otherwise there is simply no link at all. And therefore, by talking down the CNY and concurrently buying back CNY... sorry kiddos (ZH, mainstream media, and wall street) the PBOC folks are operating way above your heads. Absolutely genius.
Interesting heterodox perspective.
"PBOC folks are operating way above your heads."
There's probably a lot more to the story than the surface level, but I really don't think the PBOC is any more or less competant than the Fed or any other central banking body. ZH kinda has to guess at/fill in the blanks on opaque actions by central bankers, and is doing a WAY better job of this than the mainstream. This is obvious on it's face.
Agree. China brings back home it's currency on cheap simultaneously dumping the old shit.
This is glorious move - buy on cheap your own currency trough the using the stupidly overvalued
one you will not need after completing the move. guess who is going to laugh and who is going to cry
when they will notice the game ... genial ... chinese
Once again people, there is no spoon!
You think any of these "prices" mean anything? LMFAO!!!
First, let me agree: There is no spoon! But on the other hand these "prices" indeed mean something: There are still too much muppets left ....
China's moves will not only screw our stock market (who cares) but also cause prices of goods to rise in the US;
http://www.globalresearch.ca/what-chinas-devaluation-means-to-the-u-s-ec...
meanwhile, in the gold market...
http://journal-neo.org/2015/08/12/the-worth-of-gold-growing-by-the-day/
I can't help but wonder if they are selling treauries into rising prices in the bond market as a backdoor out of their reserves.
It certainly gives them some "headroom" to repatriate treasuries.......Get a higher price and more RMB back home... looks like a win win...
I have to say this was my thought when the first devaluation was announced.
How does making the crap China exports over here cheaper in US$ going to 'cause the price of goods to rise'?
you're right, I misspoke. Sorry! It's actually the other way around. It will hurt the US because our exports will rise in price.
"Roses are red, violets are blue
I'm Schizophrenic and so am I."
the USD is being set up as the "consumer of last resort"... there is no expectation for it to be the Chinese middle class, it will not be Europe, it will not be Russia, it will not be India, it will sure as hell not be Japan... all eyes are on the US to bring back the "glory days" of rampant consumerism... all manufacturers and commodity exporters are begging for it, it's ridiculously obvious in these and other moves...
I've posted this before and I'll say it again, they're all in for a rude surprise if they think that's what's going to happen... all y'all need to build your own domestic markets and save yourselves... quit expecting the US to pay high margin on trinkets and *pervasively available commodities* in order to prop up your country's growth targets... we're fucking spent, you bitchez are on your own...
What, no word on George Soros on the devaluation? Did he get caught when the Chinese cut the value of the yuan? More to follow.
Too busy stirring events in Ferguson.
Pilot induced oscillations usually lead to beeg crashes...this PIO is beyond bizarre...
Yuan, Yuoff....
Contradicting actions don't instill confidence.
CONfidence in a fiat con game is hard to find.
especially if one has talked themselves into the corner of raising rates, only to have to then lower again shortly thereafter.
DAX down 4% the last 2 days. US down 1.8%. germany needs a better PPT.
So how has China devalued their currency over the last few days? Have they engaged in QE or lowered interest rates, or have they instead just let the yuan slide against the dollar by not selling dollars to purchase yuan, and letting market forces lower the value of the yuan? Anybody know the mechanics ?
They have for years been setting a range for the yuan, with a daily high and daily low on the range. The trend has been toward a stronger yuan. The range idea was to deflect speculators who thought the yuan was undervalued against the dollar. Sure, you could use dollars to buy yuan, but the slope of the range was only going up 4 or 5 percent a year. The range was generally unchallenged, as Chinese state banks had plenty of yuan and dollars to defend it.
The devaluation came when Chinese set the rate for a weaker yuan - breaking the trend - then devalued the range a second time the next day. It looks like they are defending the devalued range to prevent a real panic. The article mentions another 10-15% -- implying that speculators piled on to force the yuan too low and too fast for China.
"too low and too fast" - could it also be that they want to confuse the market? China obviously has a goal of these moves, which is a massively cheaper yuan, but maybe they want to add confusion to the algos and other markets. They don't want people able to front run the next day's move.
And we know that - unlike the Fed - the Chinese state banks have plenty of 'real' dollars!
If you or I did it (or anybody else who has a Trillion burning a hole in his pocket) it would be called manipulation
But only if you live in your parents basement in a London suburb and are from India.
If the (over)fed is starting to get worried about the strength of the USD then they're going to have drop interest rates, not raise them.
I'll be glad to help by borrowing some dollars
at a negative interest rate.
Good, gets rid of the scheiss dollar.
I like that one of the worst performing fiat currencies (Brasil) is called the 'Real' - irony in there somewhere. But not just flat out funny like the Dong.
this is more the fault of outside currency and resource wars than of the real itself
Hey, it could be a "Real" piece of crap, couldn't it?
Réal means 'King' in Spanish, same thing for 'Real Estate' (meaning the 'King's Estate)
First they came for the short sellers and I said nothing for I was not a short seller. Then they came for the fx traders and I -------
It's brilliant! Keep everyone guessing. And they have plenty of dollars to waste doing so...
Yes China sell off UST and sell the dollars. That will learn the whiners. 1.9 percent drop and whining ?
(what do I know ?)
I think I need to pull my fortune out of the BRIC bank. I'm trying to figure out the anchor for this bank. SA hardly. Brazil yikes. Russia whoops. China (maybe they burned through my money in about 2 seconds.) What is their slogan, "Building customer confidence through sound strategy".
China banker rack disiprin.
dispirin...
Well with the latest drop it looks like they (PBOC) have done it again.
"A real devaluation. A broadside in the currency war. And given yesterday’s willfully false promise that it would be a “one-time correction,” more devaluations are now likely, regardless of what the PBOC might say, and in particular if it denies it."
"How freaked out can the People’s Bank of China be about the Chinese economy that has been growing admirably at 7% this year, according to the government?"
http://wolfstreet.com/2015/08/12/after-one-time-correction-freaked-out-p...
The economics of pirate globalism
https://www.youtube.com/watch?v=JlSQAZEp3PA
yuantervention == + 1
Did someone say currency wars?
So the PBOC devalues the yuan by a biggie amount. The next day it buys back lots of its cheapened yuan, sloughing off some of its valuable but worthless US dollars.
Move along. No currency war here. No skirmishing going on. Nothing to see here.