“The focus remains on the Fed, including what it might or might not do in the wake of China’s yuan move”, Kadota added.
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Zimbabwe’s own currency, the old Zimbabwean dollar, ceased circulation in 2009 and would have converted into yuan at a ratio of 40 trillion to one. The composition of that basket is secret but the dollar appears to dominate it, which means the yuan rose even as currencies of other developing countries fell.
In a routine money-market operation Tuesday, the People’s Bank of China offered 120 billion yuan ($18.77 billion) worth of seven-day reverse repurchase agreements, or reverse repos, which are a short-term loan to commercial lenders in the money market.
Strong US housing data on Monday offset the weakest performance of New York regional manufacturing since the Great Recession, leaving many market players scratching their heads on the state of the U.S. economy and when the Fed will begin raising rates. That exodus has held down the yuan’s value. The yield on U.S. 10-year Treasuries was 1 basis point higher at 2.16 percent. By devaluing the yuan, the Chinese government was catching up to the market, not trying to counteract it. Or so Beijing says.
Gruenwald said when Japan weakened its currency, its export growth did not show much expansion although it was accused of creating an unfair advantage for its products.
Crude oil, another market roiled last week by ‘s shock move and its potential impact on demand for commodities, continued to struggle in the wake of global oversupply concerns.
Plenty of reasons. The surprise devaluation suggests that something is spooking the Chinese government.
The People’s Bank of China is limiting the yuan’s depreciation to prevent an exodus of capital as it contends with the slowest economic growth in more than two decades. On Tuesday, the central bank completed putting $48 billion into China Development Bank and $45 billion into the Export-Import Bank of China, the official Xinhua news agency reported.
Devastating explosions at the key port of Tianjin may also have been a factor in weaker-than-expected activity this month. Since 2013, when the Federal Reserve started scaling back its ultra-loose monetary policy, developing economies and markets have suffered from the U.S. dollar strengthening and expectations of higher U.S. interest rates. Then there’s the chance that other countries will adopt copycat devaluations to help their exporters compete with China, thereby igniting a currency war that disrupts global trade.
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Finally, the Chinese devaluation complicates the Fed’s decision-making. Yuan positions at the PBOC and financial institutions fell by the most on record in July, a sign capital outflows picked up and the central bank stepped up intervention to support the yuan.
