How does the fall of China’s currency impact BC?

Brent crude LCOc1 slipped 1.1 percent to US$49.13.

While most major currencies saw limited moves, the New Zealand dollar fell after domestic retail sales had the slowest increase in two years, cementing expectations its central bank will cut rates.

The People’s Bank of China stepped in Friday and halted the three-day slide in the yuan, adding that it will continue to intervene should there be more large fluctuations in the Chinese currency.

He added, “While it is too early to say whether this is the beginning of a sustained devaluation of the yuan, other central banks may be forced to follow suit and that may trigger a fresh round of currency weakening around the emerging world”. Massachusetts described the yuan’s current rate as “near equilibrium”.

China’s short-term funding costs climbed slightly this week as Tuesday’s unexpected devaluation of the yuan tightened liquidity in the money market, traders said.

“I don’t see them rebounding massively in the general context of things unless there’s some sort of extra explanation by the People’s Bank of China or some move by some other central bank to combat this devaluation”. This especially applies to exporters of raw materials, the prices of which would significantly react to the interest rate changes.

The PBOC set its guidance rate at 6.4010 per US dollar prior to the market opening, weaker than the previous fix of 6.3306. The authorities’ assertions of stability look as hollow as their claims of benign intent in the currency market. The onshore spot rate weakened 0.5 percent as of 2:08 pm in Shanghai, after a two-day loss of 2.8 percent.

In the past, the central bank set the midpoint using formula based on a basket of currencies, but the methodology has never been publicised and many believed that in practice the midpoint was frequently used as a way to bend the market to policy goals. It also lowers inflation, already running below the Fed’s 2 per cent annual target.

Dalmia pointed out that the Chinese government appeared to be more sensitive to the decline in their exports than the Indian government as they had acted with alacrity to arrest the decline in their exports by taking urgent steps like devaluing their currency.

State news agency Xinhua said that the drastic fall in the yuan since Tuesday was “just temporary growing pains as the market discovers a reasonable value for the currency”.

China’s decision to move from a pegged exchange mechanism to a managed-float system has partly been driven by the strengthening US dollar, the currency to which it has historically been pegged.

China’s rivals see it as a way to boost exports and prop up the market.