China has just fixed the yuan at another record low and it is clearly ready to go lower:
From the SCMP:
China’s central bank allowed the yuan to fall below a key defensive line on the first trading day after its inclusion as a “hard currency” in the International Monetary Fund’s basket.
The People’s Bank of China set the mid-price of the yuan against the US dollar at 6.7008 on Monday, falling below the 6.70 line it had guarded in the last few months and fanning speculation it would allow deeper depreciation with the yuan’s inclusion in the IMF’s Special Drawing Rights.
…With the US Federal Reserve still likely to raise interest rates and Beijing banning investors from speculating on prime city properties, the pressure on the yuan to weaken and the urge for investors to move money abroad would only grow, analysts said.
It seems the central bank has recognised that a gradual and modest depreciation of the yuan is, temporarily, acceptable.
“The yuan is set to continue weakening this year and next year,” UBS Wealth Management chief China economist Hu Yifan said. “It seems the central bank has recognised that a gradual and modest depreciation of the yuan is, temporarily, acceptable,” Hu said. “While in theory, yuan depreciation and capital flight can reinforce each other, China can cut the link by beefing up capital controls.”
Hu forecast the yuan would be traded at 6.80 to the dollar by the end of the year, breaking through another psychological barrier.
I wonder if Hillary’s rise isn’t part of it as well. Trade pressure on China would be much higher under Trump.
For now at least, macro and markets are parting ways. A falling yuan is clearly bearish for emerging markets in terms of market share in goods and commodities but nobody cares so long as oil is rising.
I can buy that OPEC can support oil with verbal liquidity but other commodities directly exposed to China’s property tightening? They’re rising on nothing.
