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CHART: Putting the yuan 'devaluation' into perspective

The Chinese yuan devaluation over the past two days has caused a lot of talk in the finance world.

Markets have gyrated wildly and plenty of opinions have been voiced.

From Monday’s closing level the yuan has weakened 2.82%, including logging its largest ever one-day percentage decline on record on Tuesday.

Sounds scary – but is it?

The chart above suggests the hysterics over the yuan’s devaluation may be slightly misplaced, particularly given some of the huge declines seen in other major currencies over the past 12 months.

Over the past 12 months the yuan has weakened 3.7%.

The Japanese yen, in comparison, has fallen 21.5% against the US dollar.

The Euro is down 19.8% against the buck.

The Australian dollar, down 25.6%, has fallen even further.

The market response to these “devaluations” has not caused market carnage, nor a raft of negative remarks.

No, quite the opposite. They’ve been cheered, and seen risk assets rally in response.

While the policy shift sends a signal to the world that Beijing is anxious to stoke domestic demand, should it be any different just because it’s China? Its economy has been weakening, just was the case with Japan, the Eurozone and Australia in recent years.

This is all a time when the US economy has been improving, albeit at a modest pace.

When the PBOC fixes the yuan at 11.15am AEST this morning (9.15am in Beijing) – again likely to be weaker that the level seen on Wednesday – it will be interesting to see whether markets will once again quake given currency devaluation – be it in China or elsewhere – is not all that uncommon of late.

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