Chinese central bank lowers daily yuan fix against dollar in surprise move

Tuesday, August 11, 2015

Another surprise move by Chinese policymakers caught investors off guard early this morning as the PBOC took steps to weaken the renminbi in an effort to shore up capital markets. Investors were greeted in the early hours of Tuesday morning with the announcement that the daily fix against the US dollar would be lowered by 1.9% to 6.228 yuan to the dollar. The new fixing brings the yuan in line with other emerging market currencies which have in recent weeks felt the pressure of a rallying US dollar with the PBOC taking the decision in light of weaker trade and inflation data released over the weekend. With the daily moves capped to 2% either side of the midpoint the yuan traded as much as 1.99% lower from the previous day’s close as shocked investors hurriedly repositioned themselves. While the decision to weaken the renminbi is broadly seen as a one off the need to step up intervention in equity markets could prompt further action from policymakers with the Shanghai Composite and CSI 300 posting modest gains overnight, taking a breather after Monday’s heady gains.

Russia’s economy contracted 4.6% y/y during the second quarter of the year building on the 2.2% decline seen in the first quarter as weak crude oil prices significantly impaired economic growth, dragging the country into recession. Investors were bracing themselves for a torrid second quarter and sadly it seems they were not disappointed as consensus estimates of a 4.5% decline were surpassed as Russia experienced its worst quarterly contraction since 2009. Conditions for the Russian economy are a long way off improving any time soon as crude prices remain in the doldrums with front month Brent futures trading around $50/bbl for the past week having lost 17.5% throughout July as the global supply glut increased. The weaker oil revenues have in turn seen the rouble lose substantial ground to the US dollar having lost 6.6% and 7.8% in June and July respectively with losses so far in August standing at 5%. With a crude price recovery still some way off investors hold a pessimistic outlook for the remainder of the year.  

Greece has agreed bailout terms with its lenders early this morning after talks continued throughout the night. As both sides finally agreed to the details of Greece’s third bailout package market participants are hopeful that funds can be distributed in the coming days in order to avoid any potential failure of debt repayment. The euro, after firming around 1.1000 against the dollar yesterday, saw a modest pullback towards 1.0970 early on before details of the news prompted a recovery in the single currency back towards 1.1000.

PBOC lowers daily fix against USD

CNY Curncy China Renminbi Spot 2015 08 11 07 48 10

Russian economy slips into recession

RUDPRYOY Index Russia GDP 2008 2015 08 11 07 50 53

EUR reacts to Greek deal news

EUR Curncy Euro Spot 1 Days 1 2015 08 11 08 19 11

Events for today

1000

DE

Aug

ZEW Survey

1000

EZ

Aug

ZEW Survey

1330

US

Q2

NF Prod. & Labour Costs

1500

US

Jun

Wholesale Inventories

Topics: USD, CNY, RUB, Greece
More from: Kash Kamal