FXStreet (Edinburgh) – Kit Juckes, Strategist at Societe Generale, reviewed the recent move by the PBoC.
Key Quotes
“The PBoC’s announcement of a ‘one-off’ 1.9% devaluation in the CNY’s reference rate against the dollar is explained as being part of a shift to a more market-determined fixing regime”.
“That looks like a move towards a ‘managed float’ that is similar to what the majority of Asian central banks operate. However, the technical changes are less eye catching than the small devaluation which can only increase speculation that the renminbi will now play catch-up (or catch-down) with China’s major competitors”.
“Over the last two years, since the Taper Tantrum summer, CNY has dropped 3% against the dollar, but the yen’s fallen 23%, the Euro 18%, and other Asian currencies have fallen by between 5% (INR) and 25% (IDR)”.
“Relative to those moves, the Chinese adjustment is a token move that won’t do anything to stop the economic slowdown”.
“Whether or not the PBoC intends this to be the start of a series of steps towards a more competitive currency, the domino effect to weaker commodity prices and weaker currencies across EM and resource exporters will be hard to stop”.
“We still like being short NZD and CAD in G10 though the bigger moves will be in EM, and along with the dollar, the biggest winner may be sterling, since the UK case for higher rates is perhaps the clearest in G10 at the moment”.
(Market News Provided by FXstreet)