Not much fun for Australia. Commodities flogged. Miners flogged. Currency flogged. Bonds rip:
And from our mate Chris Weston:
The PBOC pushed the daily ‘fix’ up to 6.3306 from 6.2298. This is very significant as it shows they have moved to a new mechanism for how the market plays a role in the CNY – almost a floating currency. The PBOC are now using the last spot close and adjusting for CNY supply/demand (and other G10 currency pairs).
Given the spot market closed yesterday at 6.3250 they have allowed the new ‘fix’ to move above the prior spot price. This is confirmation from the market that the PBOC have shifted and traders will play a bigger role in the RMB.
This may sound a bit much….put simply the market is worried that China is moving to a more market dictated (even floating) currency. With the RMB at all-time highs (when looking at it on a real effective rate) it is around 10% over valued. So the RMB should weaken further.
If the market continues to push the RMB lower then it creates less purchasing power for Chinese importers…any asset/company leveraged to the Chinese consumer/importer would be taking a hit now.
AUD has taken a hit…interesting the JPY has weakened too…market is saying here that is you export to China you may well have to go one step further to weaken your own unit.
There is a lot of uncertainty here..markets obviously don’t like that.
Being long US treasuries (10yr) seems the trade du jour.
