The Yuan Is Plunging... Again

The offshore Yuan just crashed to its weakest against the greenback in 11 months.

The pace of the devaluation is suddenly accelerating (today is the biggest drop in the Yuan in 5 months), with Yuan testing 6.70...

For context this means that ALL US exports to China are now 7.4% more expensive than they were in Q1 - that's quite a blanket tariff.

And as we noted previously, before this is dismissed as just the mirror of USD strength, we suggest the following chart shows very clearly the PBOC allowing the Yuan to weaken notably against just the dollar while - until the last few week - maintaining Yuan's buying power against the rest of the world.

Additionally, as Capital Economics points out, if the PBOC is using the exchange rate to fight back against the US, it is pulling its punches: the PBOC’s daily reference exchange rate has in the past few days been stronger than market rates might have suggested, not weaker.

It is of course still notable that the PBOC has done relatively little to stand in the way of the currency slide, even if it isn’t directly responsible for it. It always argues that the exchange rate is driven by market forces.

But its tolerance will probably only go so far, given the painful experiences of 2015 and 2016: any benefit to exporters would be swamped if depreciation triggered economic and financial instability.

Still, as a wise market participant noted, while all the bellicose language is coming from Trump, perhaps the biggest factor right now is that Beijing has "weaponized" the Yuan...

Comments

BaBaBouy Mon, 07/02/2018 - 11:15 Permalink

Thump is pumping the dollar... Check all the FX.

Whats the endgame, a world Depression ???

Then buy up all the valuable assets at crash Prices...

Consuelo Richard Chesler Mon, 07/02/2018 - 15:29 Permalink

You mean like - all the IT related hardware which powers the web 24/7 without a hitch and enables us to sit here and armchair Sgt. Rock about cheap Chinese 'crap'...?

Or is all that reliable hardware made somewhere in Oshkosh that we were heretofore unaware of...?

How about that nice 18V Milwaukee/DeWalt cordless impact driver I used this past weekend in 90° heat all day long without a fail...?

 

 

 

 

In reply to by Richard Chesler

Ghost of PartysOver directaction Mon, 07/02/2018 - 11:42 Permalink

Whats the endgame, a world Depression ???

No, the endgame is a fair trade deal where Murica is not constantly bent over taking the big one up the arse.   It is not hard to see what is taking place.  Much harder to know when the thing will be settled.  How do you know when a drug addict or alcoholic will hit rock bottom.  The world has been addicted to the Murican economy for decades, falling to fix themselves.  That is going to change.

In reply to by directaction

stocktivity BaBaBouy Mon, 07/02/2018 - 11:28 Permalink

" Then buy up all the valuable assets at crash Prices... "

 

"China already has been. China and Russia have been buying up gold for several quarters now. Something is coming and it won't be good for us.

In reply to by BaBaBouy

TrustbutVerify The Greek horse Mon, 07/02/2018 - 11:32 Permalink

Of course, one can make the choice to buy things manufactured closer to home.  Do some research and change buying habits.  Imagine the oomph the American economy would receive if the river of money going to foreign countries was suddenly directed back here.  

Its not easy to do and takes some research.  Not all iconic "American brands" offer goods made in the US.  So many are American in name only.  Great for the various ports around the US but devastating for the rest of the US - as we've seen and witnessed.   

This hollowing out of the American economy has been in the works for decades.  It will take a long time to turn things around.  

In reply to by The Greek horse

Dragon HAwk Mon, 07/02/2018 - 11:27 Permalink

Chinese need to get their money out of China, may i suggest putting it in rolls and selling it as toilet paper,  they can always cut on the dotted lines, when they take possession in Seattle or some place similar.

roddy6667 Mon, 07/02/2018 - 11:43 Permalink

The yuan is"plunging". It "crashed". Such hyperbole!!!

When I first came to China in 2009 it was at 1:8 USD:RMB. Things were great. Business was good, everybody was better off than the year before.

By June 2018 it had gone to 1:6.20. Things are great in China. Business is good, the people are better off than the year before.

Now it moves to 1:6.60 and the sky is falling! 

These things only affect the Hebes who buy and sell contracts on currencies on Wall Street. And people who write Doom & Gloom blogs.

BitchesBetterR… Mon, 07/02/2018 - 12:34 Permalink

Folks here lack the understanding of what's the Ultimate goal of a Currency War:  It is a race TO THE BOTTOM and China is WINNING !!!  Their exports become much more attractive to the World at low value, versus the Overvalued valueless Dollar backed by 21 Trillion in Debt. 

 

get real folks!! 

 

SDShack BitchesBetterR… Mon, 07/02/2018 - 13:33 Permalink

You're right that this is currency war, but miss the big picture. These trade/currency wars are the result of the Security State trying to fend off all attacks against the Petro$. Without the Petro$ backed by the Security State, the World Wide Debt Ponzi collapses. Any trade in any form other then Petro$ has to be crushed, including crypto. This means using whatever means to crush the opposition, including military options. You see examples of it everywhere with shooting wars in the ME, and trade wars everywhere else, that will become shooting wars if necessary (i.e. Ukraine). Everyone other then USSA will be sacrificed. Look at how Merkel is trying to hang on. She knows the EU will be sacrificed to protect the Petro$. Sociopaths MUST win at all costs. It's what ALL sociopaths do. We are seeing the beginning of the end game... sociopaths turning on each other. 

In reply to by BitchesBetterR…

MINEFINDER Mon, 07/02/2018 - 13:17 Permalink

China is notorious for currency manipulation- it (currency value ) does pretty much what China wants. Low Yuan acts as another barrier (tariff) to foreign made products. 

francis scott … Mon, 07/02/2018 - 15:53 Permalink

Oh, how Beijing hates it when the yuan plunges.

It means they have to eat billions and billions of

dollars worth of exports and can't afford to buy

any imports.

 

It does mean that, doesn't it? 

Or am I being sarcastic?