It’s the third cut in three days. The median forecast from seven strategists in Bloomberg surveys over the past two days was for the yuan to trade at 6.35 per dollar by year-end, implying a 0.8 percent gain from Thursday’s close. They now appear to be trying to adjust the currency value to reflect market realities. But officials also said the yuan’s underpinning remains firm and that its value should strengthen, and dismissed the idea that the move was made to help the country’s sputtering exports sector. Even as global exports are on a sliding path, this decline in global demand is putting pressure on the export-driven Chinese economy.
The initial reaction from U.S. lawmakers to the depreciation, particularly Democrats, has been swift and negative. “After a two-day adjustment, the renminbi has gradually returned to a more market-oriented level”, she said, a potential signal that the central bank is largely done guiding the yuan lower and will now turn its focus to keeping it stable. It has fallen a total of 2.9 percent since Tuesday.
Tan Jialong, chief executive of Tan Private Wealth Management Office in Shanghai, said that since May there has been an increase in queries from his clients in China about overseas asset allocation. Bob Casey, referring to the traditionally industrial state he represents. “Rather than changing their ways, the Chinese government seems to be doubling down”.
ENERGY: Benchmark U.S. crude fell further from a six-year low, down 18 cents at $42.04 per barrel in electronic trading on New York Mercantile Exchange.
In a VOA interview, Peterson Institute scholar Nicholas Lardy says the change gives Beijing more flexibility in managing the economy. Earlier, the PBOC said there was no basis for continued depreciation of the yuan. Beijing “is obsessed with the idea” of the yuan becoming one of the global Monetary Fund’s (IMF) reserve currencies, along with the euro, the yen, and the dollar.
The opening of the capital account had been a vague policy objective until Mr. Zhou, the PBOC’s longtime governor, earlier this year overcame resistance from conservatives who had viewed such liberalization as a Western concept that would only expose China to greater financial vulnerabilities.
The PBOC also said that it will monitor “abnormal” cross border flows. “We are relatively sanguine about the immediate moves in China”.
Lardy characterized Treasury’s reaction as “modestly positive” as it waits to see how things evolve and make a definitive judgment.
Craigs Investment Partners broker Chris Timms said currency wars were not a new phenomenon but he believed the latest move by the China central bank was to shore up its economy after a run of poor economic data. The weaker fixing follows through on its commitment to set the midpoint with a closer eye on the previous day’s closing rate, seen as making the fixing more responsive to market forces.