Renminbi to move both ways after surprise devaluation

Unhappy and irritated by a question put to him by a female Fox News TV journalist during a debate between several Republican aspirants for the White House, he notoriously said she had blood coming out of her eyes and “wherever”.

Just as his remark about the female journalist is distasteful, his comment about the devalued Chinese currency is extravagant.

Having succeeded, China wants to be counted as one among equal giants of the world economy.

US benchmark West Texas Intermediate for September delivery fell 51 cents to $41.99 and Brent crude for October tumbled 57 cents to $48.62 a barrel.

A weak yuan will have the most negative impact on countries that have a similar export profile to China, and which also exports their products to Chinese consumers.

Whatever the cause, the main danger is that China will destabilize the global economy through excessive currency depreciation. As the world’s largest exporter Chinese exports constitute 13.7 per cent of the global exports.

The move by China overshadowed positive developments in Greece, where a new bailout plan was agreed on and approved by the Greek parliament on Friday.

“General merchandise retailers and the toy industry will be clear winners”, Fitch Ratings said in a research note last week.

The People’s Bank of China’s higher gold reserve holdings are bullish for the market in the longer-term, the bank said. If that is the case, and China reduces demand for commodities, a number of countries in Latin America will suffer. Businesses have also been affected as a result of this major shift.

China has been the world’s fastest-growing big economy by some distance, but has more recently seen a run of weak economic data.

One-year NDFs are settled against the midpoint, not the spot rate, and now that the trading band has been widened to 2 percent in either direction, corporates are much warier of using the NDF to hedge given the basis risk inherent in them. American politicians complain that China is manipulating its currency to keep the renminbi artificially cheap. “History shows that gold prices…generally rise, though sometimes with a lag, after the first rate hike”, the bank said. But recent events remind us of the underlying tension between free markets and unfree politics – and offer a warning that China’s straddling of these opposing views can’t continue forever.

Tokyo added 0.49 percent, or 100.81 points, to end at 20,620.26, after news Japan’s economy shrank a lower than expected 0.4 percent in the April-June quarter and 1.6 percent from a year earlier. Chinese manufacturers also face rising labor costs. Over the past decade, China’s central bank has either permitted the renminbi to creep slowly upward against the US dollar – at a pace considered glacial by the standards of foreign exchange markets, the FT reports in a recent article – or held it steady in times of stress, such as the global financial crisis of 2008-09. This prompted the global Monetary Fund to officially determine in May that the renminbi was no longer undervalued.

The US dollar added 0.1 per cent to 124.39 yen. Policymakers are trying to balance the need for financial stability with a desire for stronger exports and the yuan’s inclusion in the IMF’s basket of reserve currencies.

Speaking of the outflows of money from China…

Last week, the pegged exchange rate saw uncaristeritic volatility.

Whatever the real reason behind the decision in Beijing to devalue the yuan, what is needed worldwide is adjustment to its reality.

However, the economist noted that China has benefited from the current situation as yuan devaluation helped the country’s competitiveness in the US. US presidential nominee Donald Trump has warned that cheaper Chinese exports could “devastate” US markets.