Vietnam doubles dong’s trading band after China devalues yuan

Lawmakers have for years accused Beijing of manipulating its currency, giving an unfair advantage to its exporters, and the Obama administration has consistently called the yuan “significantly undervalued”.

“There is reason to be skeptical of believing that the largest devaluation of the Chinese currency in over two decades is merely about moving to a market-based exchange rate“, said Rep. Sander Levin of Michigan, the leading Democrat on the House committee that oversees trade and a critic of the Obama administration’s trade policy. A weaker yuan could hurt the competitiveness of firms outside China by making their goods and services relatively more expensive, while companies that generate sales in China could find revenue generated in yuan is worth less in their home currency. In July, Chinese exports plunged 8.3 percent year over year.

The devaluation of the yuan means their purchasing power outside China will be hurt, says Alessandro Migliorini, an analyst at Mirabaud Securities.

CHINA’S DEVALUATION: The global Monetary Fund welcomed Beijing’s move toward more flexible exchange rates, but many investors saw it as an attempt to stimulate a slowing economy.

Many economists cautioned against seeing Beijing’s move mainly as an effort to benefit its exporters. Emerging market currencies were generally lower.

“I don’t think the move will trigger a global currency war, ” a Japanese policymaker said.

On Tuesday, the People’s Bank of China slashed the yuan’s fixing by almost 2 per cent in a bid to boost Chinese exports and lift its struggling economy.

The Dow Jones industrial average fell 212.33 points, or 1.21 percent, to 17,402.84; the S&P 500 index lost 20.11 points, or 0.96 percent, to 2,084.07 and the Nasdaq Composite dropped 65.01 points, or 1.27 percent, to 5,036.79. Brent crude, a benchmark for worldwide oils used by many U.S. refineries, fell $1.23 to close at $49.18 in London.

Nine central banks had attempted to raise rates since the global financial crisis, Mr Sherwood said, only to have to reverse the policy after growth and inflation declined.

At 12pm (AEST) on Wednesday, the currency was trading at US72.53c, down from US73.16c on Tuesday. “We’re looking at down around 70 cents at the moment, by the year’s end”, he said. Prada sank 4.4% in Hong Kong, and Coach fell by 1.5% in New York. “Quite than altering their methods, the Chinese language authorities appears to be doubling down”.

The US Treasury Department’s response was more measured.

“While it is too early to judge the full implications of the change…”

China’s government said the move to weaken the yuan was a result of reforms intended to make its exchange rate more market-oriented. This argument, that the currency will now reflect trading fundamentals, could carry some weight in Washington, provided China sticks to its guns. Initiatives by Japan and the European Union over the past two years depressed the yen and euro.

“The transfer alerts that (China) is prepared to make use of all out there instruments, together with a weaker foreign money, to prop up exports and its home financial system”, stated Eswar Prasad, a world economist at Cornell College.

Commodities investors anxious that prolonged yuan weakness could revive deflationary pressures, with a 19-commodity Thomson Reuters/Core Commodity CRB Index holding near lows not seen since 2003. Inflation has risen just 1.3 per cent in the past 12 months.