China Sends Hawkish Fed A Message - Devalues Yuan Near 2016 Lows

Tyler Durden's picture

Just as we warned was probable, The PBOC sent a message loud and clear to the newly hawkish Fed following today's surge in the dollar after the minutes were released. With the 2nd biggest daily devaluation since the August collapse, China pushed the Yuan fix against the USD down to its lowest since early February - barely above the January lows. As we warned earlier, the China-Panic trade looms loud now as turmoil appears all that is left to stop The Fed unleashing another round of liquidity-suckiong rate hikes sooner than the market wants.

All eyes have been firmly focus on the Yuan's move against the USD but in fact the Yuan has been falling non-stop against the world's major currencies...

The critical issue now is that the U.S. dollar is appreciating again. The
Bloomberg Dollar index is up 2.8% in the last two weeks and another 2%
wouldn’t be an unreasonable consolidation in the context of it dropping
more than 7% in the previous three months.


That previous dollar slide distracted from the fact that yuan depreciation never abated. Against the basket, it’s been weakening at an average rate of almost 1.2% per month for the last five months.



The market’s single-minded focus on USD/CNY is crucial and it’s also why disaster can still be averted. It will require the PBOC to temporarily suspend their yuan-weakening policy for as long as the dollar is climbing.


Otherwise, prepare to batten down the hatches for the coming storm.

It appears that it is the USD's turn to face The PBOC once again... The 2nd biggest daily devaluation of the Yuan fix against the USD since August's collapse.


Simply put, China does not want The Fed sucking the liquidity lifeline out of world markets right as it embarks on another round of desperate credit reflation.

Given The Fed's comments today, the only excuse left for Yellen and her friends (unless they are willing to lose all credibility due to short-term fluctuations in macro-economic data from now to June meeting - as opposed to their mandated long-term view) is if markets turmoil enough to warrant some level of conservatism. As we have warned before - bullish stock market investors should be careful what they wish for - the higher stocks go, the higher the chances of rate hike, and the more likely China pre-taliates with some turmoil-inducing events to stall the unwind... the last time traders panicced about China, bad things happened to stocks...

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
ISEEIT's picture

Already pulled the pin.

Now all they gotta do is let go.

LetThemEatRand's picture

If Yellen pulled the pin and let go, would her hair come off in one piece or would it fracture into two pieces?

JackT's picture

Seriously with the carbon copy charts - just a bit uncanny.

JerseyJoe's picture

Wait, who is this Yellen person?   Do you mean Mrs. Magoo?   You know driving with Marxist/Keynesian rose colored glasses on?   

I use to call her a Hobbit but then ZH set me straight...definitely Mrs. Magoo.  


Publicus_Reanimated's picture

Three shall be the number thou shalt count, and the number of the counting shall be three. Four shalt thou not count, neither count thou two, excepting that thou then proceed to three. Five is right out.

SilverDoctors's picture

This might be just the first blow.  Golden Jackass Jim Willie warned today of the dollar's DEATH BY GOLD...this summer!
Courtesy China... 
Your move Janet! 

BeanusCountus's picture

But... it's the right thing to do. Rates should reflect risk. And there's more risk out there (default, deval, etc) than 1.75 on the ten year treasury.

Boondocker's picture

So many UFOs  and their extra ugly wives. ....glad I got out of Kalifornia

MFL8240's picture

Utter bullshit, the TRIBE will never raise rates, this is another of their many lies! More games as the dollar enters the terminal stage!  Whatever they can do to prop up paper (short term) and crush Gold and Silver!

Bill of Rights's picture

You say crush I say Sale...

Yen Cross's picture

  Tyler, you're 90% spot on.  I can't even begin to thank you, for your collective wisdoms.

    You gals and guys do your best, to be the best, and I'll hold your handle on any trade, any time.

    The Algo's tee off on us , and the Central Banks learn from us.

      Being " oversold" is like being in a bed with three ugly women.

LetThemEatRand's picture

"Being 'oversold' is like being in a bed with three ugly women."

And given that this is Zero Hedge, you brought no bags.

Yen Cross's picture

    I have that stale, small long a/u trade from earlier.   I gotta set the alarm clock, for London.

  Those days are getting long LTER.

new game's picture

this currency bullshit is becoming a big fucking sharade. up fucking down, and all based on faith in what? that these fuckers can control their titanics both headed for bergs south and north. maybe santa claus will wake the fuck up when they hit...

only question is which pole is santa residing at?

ebworthen's picture

C'mon Janet!

This economy is so strong, go for a whole 1% raise!

Sorry_about_Dresden's picture

The yield on the 10-Year UST bond is going to 6%, and soon. If you read between the lines, in this Feral Reserve notice asking for comments, I don't see any other alternative.

"stockholders with more than $10 billion in
total consolidated assets shall receive a dividend on paid-in capital stock equal to the lesser of six percent and the rate equal to the high yield of the 10-year Treasury note auctioned at the last auction held prior to the payment of such dividend"

Next dividend payment to bank shareholders is set July 31st, 2016. Why would they take less than 6% on the captive capital stock held at the Feral Reserve, which is $30,042,000,000???????

Look at page 6. They were getting a 6% dividend on this amount, the next time this rate is set, on June 312st, 2016, the rate will be the yield on the 10-year UST note, which %1.872 right now. That is delta of $1.36 billion dollars. Do you think the Hebrews will stand for taking less when they can take more?

Even if it were to destroy the world the Hebrew would never take less and will always scheme to get the extra points. This is their nature. Says to me the rate on the 10 year UST bond will be, at least 6%, on the date they set the dividend payment, on June 31st, 2016. Maybe they can just boast it momentarily to get it to 6% and then let it go back down? I don't see a Hebrew walking away from 413 basis points? No way! There instinct for yield is much stronger than than any other force in the universe.

Flying Wombat's picture

Longer-term, Yellen and company have a heck of alot more to worry about.


China Quietly Prepares Golden Alternative to Dollar System - F. William Engdahl

JenkinsLane's picture

"It's an old Sicilian message...."

IntercoursetheEU's picture

The Fed is full of shit, why does anyone even listen to them anymore.

gregga777's picture

The PBoC isn't sending a message to the Feral Reserve. They are dealing with the worldwide "dollar" short. What you are seeing are the consequences of their 90-day forward dollar swaps expiring from January. These yuan "devaluations" are now coming in waves spaced about three months apart. As Jeffrey P. Snider, Alhambra Investment Partners, puts it, the PBoC takes 2-steps back and then 1-step forward. In other words, China is slowly sliding into chaos as they realize that all of that industrial capacity that they were induced to build by the false "Eurodollar" exponential credit boom actually has no customers in Western markets. 2007/2008 witnessed the collapse of the great "Eurodollar" exponential credit boom and banks have been hit by the collapse not only in profits but also their probability for survival (Deutsche Bank being a prime example of endangered survival). Reading his articles about Eurodollars, the dollar short, and others, explains why China, and other countries, are in chaos.

Wild Theories's picture

I did like those articles of his, though they do take some chewing to digest, and the term "eurodollar" may have thrown off many readers from understanding what he's saying.

Sorry_about_Dresden's picture

Why does the PBOC, or more specifically the SWF, need dollar swaps when they are drowning in $3.3 trillion, as of 2012, in usd denominated reserves? Why wouldn't the PBOC just redeem mature UST bonds instead of some farcical swap arrangement which they don't really need?

I mean....why the fck does the PBOC need to swap USDs when they are holding so much usd denominated debt?

Any swap arrangements is for the benefit of the Feral Reserve Bank of Jew York!

My last trip to the PRC was in mid 2014, but I did NOT see any slowdown. They were still tearing up streets and digging shafts to lower in tunnelling equipment, made in Germany of course, to continue their infrastructure blitz. This was in a second tier city of 11 million people, still bigger than Jew York, but it didn't appear to me the PRC was slowing down in any way. New subway lines had opened since my previous trip 15 months before and they were starting new projects, new Germany built systems were everywhere I looked, Germany cars, escalators, subway carriages, elevators etc.

When I look at German trade figures:

German imports #1 China, People's Republic $91,622, 102,000

German exports #1 United States $114,024,285,000

Foreign Trade Balance (Exports - Imports)

People's Republic of China (-)$20,219,465,000

Makes me wonder what it is the Germans import from China in such quantity somewhat dwarfing their exports. Rare Earth metals perhaps????

I don't buy your premise that the PRC is sliding into chaos. I didn't see any chaos when I was there. I saw an economy rapidly expanding with a consumer base with ZERO household debt, plenty of savings and a people who have a propensity for paying cash for everything they buy and would never think of taking on revolving debt like the idiots in the USA who live on borrowed money.

When people claim China is "sliding into chaos" I suggest they have never been there and what they claim is mere conjecture.

Why do you say this?

joego1's picture

I bought some calibration wieghts on ebay from Hong Kong for $2.45 with free shipping. I would like to know how this pencils out. It seems rediculous how cheap chinese products can be made.

hedgiex's picture

The US$ is a major global reserve currency arguably now less of a benefit to the US economy than before. The asinine Fed is still providing this anchor (with no credible replacement) for global trade and investment flows at a cost to the US economy. If a debt peaked nation with dubious property rights protection and no independent Central Bank in substance want to prove that they can bend global markets to accept their fixes of the RMB, let them have this crown of thorns.

Theirs is still an export economy of real goods and services. Devaluation cause higher costs of imports as inputs to their manufacturing of low-end tech products in the presence of declining global demand. It stifles investments in their service sector and high-end tech production undermining their touted reforms that btw change with each fire fighting. It will also spur capital flights that they have been desperately trying to arrest despite their exchange controls. 

PBOC is losing its credibility with each passing day as evidenced by increasing absurd rhetorics that contradict declared but constantly revised reforms. The unravelling is gaining traction.


Yen Cross's picture


PBOC injects 85bn yuan via 7-day reverse repos
TrustbutVerify's picture

5 basis points or schedule 1 basis point per month for 1 year.  

Muppet's picture

"China pushed the Yuan fix ... barely above the January lows."     Yes, but not exceeding January.    Tempest in a teapot.

Dangerclose's picture

The current USD/CNH chart looks like it reversed as quickly as it happened and is actually getting weaker!

nibiru's picture

China China. Soon it will take over gold pricing through SGE (as more and more fact will unravel about who rigged the prices of PMs) but we already know they can't take the US on their own - I guess Russia will help them with a smile.

venturen's picture

Same as it always was