Wednesday, August 19, 2015

Context of Yuan devaluation is more important

The two or three percent devaluation of the yuan is completely meaningless.

You have to look at the Chinese currency in the context of all other currencies. 

The Chinese yuan has appreciated by 80% over the past two years against the yen. 

Over the last few years, the yuan has appreciated against the dollar, and the dollar has appreciated against just about anything in the world.

Don’t forget the People’s Bank of China has said that they will have now a currency that will reflect more market forces. And that means that if the market forces are against the currency, then the currency will go down.

Chinese Yuan further weakness ahead

It is likely that the Yuan, which has had been strong until recently, has turned the trend and here onwards, it will rather weaken. It would easily weaken from the recent peak by about 10%. We should not forget many Asian currencies and many emerging market currencies are down 30% to 60% over the last four years.