Yuan opens weaker, but stronger than central bank midpoint

The People’s Bank of China (PBOC) suggests that the adjustment made to the value of the currency was due to the new method of calculating the daily price of the currency. But why should Western markets be anxious about a competitive devaluation of the Chinese currency? Note that China may be keen on boosting its exports which has been slumping for most of 2015. Apple, which gets about 23 percent of its revenues from China, according to Morgan Stanley, tumbled this week to a near seven-month low. That compares with 1.17 percent prior to the shift in China’s exchange rate. But given China’s strong middle class and Japan’s close proximity to China, a weaker yuan might increase the influx of tourists to Japan as consumers cut back on more ambitious-and costly-trips to Europe or North America.

China’s decision on Tuesday to allow markets greater sway in setting the currency’s level triggered the biggest sell-off in 21 years and roiled global markets. September Comex Silver rose 2.46% and October NYMEX Platinum posted a 3.16% gain. Brazil capital market had weakened by more than 5% YTD till end of last week on concerns of slowdown in economy.

Traders say the stablisation of the yuan was mainly market-driven, and they have not seen any signs that major state-owned banks are intervening in spot rates during the session as happened last week. At the same time, some analysts view this as a reform that would bring China closer to floating rate.

Policy makers are trying to balance the need for financial stability with a desire for stronger exports and the yuan’s inclusion in the global Monetary Fund’s basket of reserve currencies.

Japanese firms selling domestic goods have the most concerns, as a cheap influx of goods from China offers fresh challenges to local companies. However, looking at the 15-year chart below shows the yuan topping out in early 2014. However, during the same time previous year, it witnessed bond issues worth more than $28bn. The financial system is predicted to develop lower than 7 % this yr, its slowest fee since 1990, and will decelerate much more subsequent yr. The inventory market has been in a freefall since June.

“South Korea will likely suffer a direct or indirect impact from the financial unrest in Southeast Asian countries”. Previously, the Singapore dollar has been one of the more stable currencies in the region, together with the peso.

Particularly worrisome is the rather passive mindset – especially pronounced in the US – to hope that “China will be fine, so that we don’t have anything to worry about”.

On August 11 the Chinese Yuan (Renminbi) dropped in value by about 2%, pushing the Chinese stock market woes and the standoffs at the Trans-Pacific Partnership negotiations out of the headlines. Following the press conference, the Shanghai Composite Index was trading up 1.3 percent, while the smaller Shenzhen Component index was up 1.9 percent.

The precious metals complex moved in the opposite direction of US crude oil, which turned higher after reaching a six-and-a-half-year low. But on top of that, the corruption scandals faced by Malaysian Prime Minister Razak and Brazilian President Dilma Rousseff (who is now at risk of being impeached) have compounded their countries’ woes. China’s new currency policy may be the least-bad option available to them, but it is a symptom of the extent of the fundamental disequilibriums within the Chinese economy that must eventually be resolved. For instance, a large percentage of “high tech” exports rely heavily on imported components acting effectively as an assembly center.

In the eurozone, Germany ended up subsidising peripheral economies, which suffered from a sovereign debt crisis after years of unsustainable borrowing and weak exports.