08/14/2015 - The Yuan's Wild Ride towards SDR Status

* The Yuan's Wild Ride towards SDR Status
* Market Movers: Weekly Technical Outlook
* Look Ahead: Stocks
* Look Ahead: Commodities
* Global Data Highlights

Last week the People's Bank of China (PBoC) shocked the market by lowering its reference rate for USD/CNY by 1.9% in one day, the largest move since the mid-1990s; then in the following days the bank lowered the rate twice more, but not by nearly as much. The surprise drop in the yuan ricocheted throughout the FX market instantly, as investors became nervous about the underlying reasons for the move and the effect it would have on global inflation and asset prices. Commodity currencies like the Australian and New Zealand dollar plummeted on the news, with AUDUSD even touching its lowest level since May 2005.

The move by the PBoC was designed to ease some pressure on China's export market and was in direct response to dismal economic data out of China. Exports fell 8.3% y/y, completely missing an expected 1.5% drop, and imports fell for the ninth month in a row in July (-8.1% y/y). Clearly the domestic economy is struggling from a lack of demand, both from within China and globally, and a relatively strong currency. The dramatic drop in the reference rate should make Chinese exports more competitive and, in turn, spur economic growth. It also has seemingly improved the yuan's chances of being included in the IMF's exclusive special drawings rights (SDR) basket..... Full text »

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