From Forexlive:
SocGen: The domino effect to weaker commodity prices and weaker currencies across EM and resource exporters will be hard to stop. We still like being short NZD and CAD in G10 though the bigger moves will be in EM, and along with the dollar, the biggest winner may be sterling, since the UK case for higher rates is perhaps the clearest in G10 at the moment.
Credit Agricole:On a broader level, the devaluation signals PBOC’s eagerness to join the global currency wars. With the competitive devaluation by various central banks gaining momentum but global trade slowing, the latest CNY devaluation could be seen as likely to force other central banks to consider similar measures before long. Yet another consideration here should be the impact of the PBOC actions on the capital outflows from China. If the outflows were to intensify after the CNY tumble, the erosion of central bank’s FX reserves should continue and add to concerns about insufficient future sovereign demand for global assets. In turn this should continue to boost risk premia in the global bond and stock markets. One currency that so far has successfully weathered the storm has been JPY. We doubt that JPY could decouple from the selloff in Asia FX for too long, however. The CNY devaluation comes on the back of disappointing trade data out of China (Japan’s main trading partner) and highlights that the external conditions for Japanese exporters could deteriorate further. All this adds to the list of BoJ’s worries that already includes the stubbornly low Japanese inflation and casts doubt over the bank’s ability to achieve its 2% target anytime soon. We subsequently see risks for USD/JPY on the upside from here.
BofA Merrill: Today’s events won’t likely impact the incoming data before the September FOMC meeting. Instead, we think that the Fed will need to make a risk assessment: is the greater uncertainty after the Chinese yuan depreciation enough to warrant postponing liftoff? The FOMC also has the option to slow the pace of subsequent hikes, should downside risks be realized. Fed officials will need to weigh these risks against the realized cumulative improvement in the US labor market.The Fed call is now closer than before, but it may take a significant reaction by global markets for the FOMC to stay on.
NAB: This threatens our current AUD/USD forecast that currently has 0.74 for end September, 0.72 for year end and a low of around 0.71 in H1 2015. At the same time, our AUD/USD forecasts for the remainder of this year are heavily conditioned on whether the Fed makes its first move on rate following the September 16/17 FOMC meeting, and if so whether the US dollar necessarily appreciates on the back of that. We think there is still some USD dollar upside on a September move (the NAB call) and so risk to our current AUD/USD forecasts lie to the downside.
Deutsche Bank: The devaluation of the RMB poses four headwinds for the metals. 1) China accounts for 45 – 50% of global metals demand, so the obvious impact is a weaker RMB makes commodities more expensive to import. The immediate impact will be that the arbitrage between domestic and imported commodities closes up, discouraging imports in favour of domestic supply in commodities such as coking coal and zinc. 2) Most commodities are in balance or over-supplied, with prices being set by the marginal cost of production. Weaker producer currencies will result in lower costs, and lead to lower prices. 3) China is a growing exporter of its overcapacity, particularly in metals such as aluminium, steel and stainless steel, a weaker RMB simply improves the competitiveness of exports. 4) Tighter monetary/financial conditions may dampen the demand recovery.
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