Surprised Markets After a decade of a steady appreciation against the US dollar, investors had become accustomed to the stability and growing strength of the yuan. In other words, when China slows down, imports of commodities and raw materials also fall taking a significant chunk of exports off many countries which inevitably add up to a loss in the GDP for the raw materials and commodity exporting countries.
At that time the yuan was rejected on the basis that it was not "freely usable. The Indian currency immediately plunged to a two-year low against the dollar and remained low throughout the latter half of And, while the drop in the value of the yuan was the largest in two decades, the currency still remained stronger than it was the previous year in trade-weighted terms.
Here are a few reasons why the markets are concerned with China Exchange Rate Valuation Up untilthe Yuan was strongly pegged to the US Dollar but in a bid to boost exports, it was further devalued to make Chinese goods more competitive in the global markets.
Powered by a population of over 1. China, for a better lack of an analogy, is a bull in a china shop. Despite the mixed reaction from different currency markets, the reason China did this was clear.
China Imports - Source: The strong reaction from markets and media was more from the angle that even slightest movement made by China can create a ripple effect on fragile global markets. By maintaining a weak exchange rate against the US Dollar, the Chinese Yuan was able to make exports competitive against its peers while the Chinese authorities maintained strict control on capital flows, especially when it came to the US Dollars.
As a side benefit of the devaluation, China also gets temporary relief in promoting exports at a cheaper price — though this will only last until the next country takes action in the game of currency war hot potato.
In addition, it is reasonable to expect the yuan depreciation will lead to further weakness in the price of other commodities that India imports from China, making it all the more difficult for India to remain competitive both domestically and internationally.
India has already seen its trade deficit with China nearly double between and It was only a matter of time before the Swiss Franc gave way and then it was the Russian Ruble, in the height of the US sanctions.
While many American politicians may grumble, China is actually doing what the U. With slower exports and a stronger U. With the ECB already into negative deposit rates, and the BoJ already at the far end of the scale, a weaker USD could mean that something will have to give.
China emerged as a strong economy largely due to its manufacturing sector. On the flip side, falling commodity prices are making it much more difficult for Indian producers to remain competitive, especially highly leveraged companies operating in the steel, mining and chemical industries.
And in fact, the currency devaluation was one of many monetary policy tools the PBOC employed inincluding interest rate cuts and tighter financial market regulation. By devaluating its currency, the Asian giant makes exports cheaper and gains a competitive advantage in the international markets.
Trading Center Want to learn how to invest? Shares Number Crunching:On August 11, China's central banks shocked markets by devaluating the yuan in the biggest move in 20 years.
Over one month later, here is the impact. On Aug. 11,the People’s Bank of China (PBOC) surprised markets with three consecutive devaluations of the yuan renminbi or yuan for short, knocking over 3% off its value. SinceChina’s currency has appreciated 33% against the U.S.
dollar, and the first devaluation marked the largest single drop in 20 years. “It was the PBOC that triggered the sudden yuan devaluation, without any notice or without any hints,” she said of the People’s Bank of China in While the yuan has had effects on markets -- for example, futures contracts on the S&P Index, Asian equities and oil all dropped for a time Friday after China cut the yuan’s daily reference.
Jul 22, · Watch video · “It was the PBOC that triggered the sudden yuan devaluation, without any notice or without any hints,” she said of the People’s Bank of China in While the yuan has had effects on markets -- for example, futures contracts on the S&P Index, Asian equities and oil all dropped for a time Friday.
Here are a few reasons why the markets are concerned with China. Exchange Rate Valuation. Up untilthe Yuan was strongly pegged to the US Dollar but in a bid to boost exports, it was further devalued to make Chinese goods more competitive in.
Apr 09, · Watch video · China is evaluating the potential impact of a gradual yuan depreciation, people familiar with the matter said, as the country’s leaders weigh their options in a trade spat with U.S. President Donald Trump.Download