China Focus : Piggy Back On The Green Back
I wonder if I had missed writing China over the weekend because of some inner psychic that saw today’s devaluation move but if it was so, then I would like to smack that silent traitor for I had not expected it !
Really, it would be unreal that the PBoC caved in to the USDCNH or is that the whole story ? Or it is the new 100 yuan note that was launched yesterday ?
Well, the IMF has already wiped out their SDR reserve currency chances for this fall as of last week. It will still be a matter of time before the CNY becomes a part of that IMF reserves basket and it is clear they prefer to take their time with the “slow bull, not mad cow” approach.
“The People’s Bank of China cut its daily reference rate for the currency by a record 1.9 percent, triggering the yuan’s biggest one-day loss since China unified official and market exchange rates in January 1994. The change was a one-time adjustment, the central bank said (中国央行：人民币保持坚挺给出口带来了一定压力) in a statement, adding that it plans to keep the yuan stable at a “reasonable” level and will strengthen the market’s role in determining the fixing.” http://www.bloomberg.com/news/articles/2015-08-11/china-weakens-yuan-reference-rate-by-record-1-9-amid-slowdown
Word is that there is blood on the street after this 2% devaluation and I think we should not get too carried away during this capitulation exercise because those exports numbers (-8.3% YoY vs -1.5% expected) on Sat looked terrible but would not have been so if they had let the CNY go like a good global citizen this year. Eg. if CNY = AUD = -8.3% against USD ytd, then exports would be -8.3 +8.3% = 0% which is better than the -1.5% expected ? Pardon my faulty simplicity because we also know that China is not relying on exports for growth in the future.
Yet, to me, the timing could not be more perfect, right ahead of the Fed next month and getting a boost-up or a piggy back from the USD momentum now that the entire market is so sure of it.
Secondly, it would also mean that those US$ 180 bio worth of US treasuries that they sold are suddenly worth more, along with all their foreign investments ! And lastly, fx losses may stem outflows ?
So, what do I think ?
Opportunity does not knock twice. I was wrong about CNH converging on CNY but I think these spikes are good time to load up a bit more of it, as the speculators go belly up, for the future because there is still something left on the plate.
Yes, it would take a long while for the “diminished credibility of policymakers” to be re-established but now the FED would be working hard to maintain their credibility next month !
Indicative prices from last week can be found in our new directory – do check it out !