China Devalues the Yuan for a Second Consecutive Day

On its part, China has increased its presence on the continent funding major infrastructure projects in a number of Sub-Saharan Africa countries as it sort to gain a upper hand in deals that involve raw material for its fast growing industries back home.

“This move won’t solve some of the pressing problems China faces”, Sung Won Sohn, an economist at California State University Channel Islands, cautioned in a research note.

The cash injection marks the biggest of its kind since Jan. 28, 2014, when the PBOC offered 150 billion yuan via the 14-day reverse repos.

This is neither fair nor reasonable. He said that was compounded by concerns that last week’s change in exchange rate policy might accelerate flows of capital out of China.

The forex trading could fluctuate within a certain range with the reference rate – if the fluctuation range widened – so then the central parity rate would be realised. “Some thought whether the US Federal Reserve would delay the hike in interest rates but I think that some of the market thinking should just calm down”, he said. The dollar gained 0.2 percent against the yen JPY= after Japan’s economy shrank in the second quarter. The U.S. economy grew at a steady 2.3 percent annual from April through June, and U.S. unemployment has fallen to a seven-year low 5.3 percent. To that end, the PBoC changed the way the daily fix is calculated.

Commodity prices remained under pressure from worries about growth slowing in China. “It has been comforted by the fact that the yuan rose in the last few days because of soothing comments from the PBOC, but it is convinced that this is a longer-term threat”. This was despite its trading partners rushing to depreciate their respective currencies to support exports.

“The impact of the yuan move on global markets isn’t large”, he said. This is in line with its current mechanism for realising the true value of the yuan.

Parts of the products from the regional market are assembled in China before they are exported to the US or Europe. The US 10-year yield was one basis point lower on Tuesday at 2.14%.

Tuesday’s performance extends a volatile period in Chinese markets over recent months.

China stunned the markets last week by implementing the most significant devaluation of the yuan in 20 years, with a 1.9% cut on followed by 1.6% and 1.1% devaluations. It is a decision which should have been taken a bit earlier.

China rattled global financial markets Tuesday, August 11, by devaluing its currency – an effort, in part, to revive economic growth. Keep your Hong Kong stocks.

HSBC global emerging markets head Paul Mackel explained that the move was not to devalue the yuan but to readjust rates for it to be more “flexible” based on market forces.

Given the positive outlook of the currency, MA believes claims that claims that the falling renminbi will plunge bulk commodities prices, trigger depreciation of other currencies and even affect the US’s schedule to lift its interest rate cannot hold water.