China has joined the currency wars

Photo by Kevin Frayer/Getty Images

The Chinese rate cut over the weekend is, ostensibly aimed at shoring up “fundamental trends in growth, inflation and employment.”

But like other central banks around the world the PBOC has another, unstated, goal in its recent RRR and rate cuts.

That goal is a continued weakening of the Renminbi.

Having bottomed around 6.1076 just before the first PBOC cut last November the USDCNY rate is back at 6.2686 (higher means Chinese Renmimbi weaker).

USDCNY Weekly –

That’s the strongest the USD has been since July 2012 and market expectations of a break to higher levels are increasing. This morning Ray Attrill, NAB’s co-head of currency strategy, wrote that the NAB’s chief Asian strategist notes:

The CNY has weakened visibly since the onshore market returned from the week long lunar New Year holiday and the rate cut can further weigh on CNY prospects. She expects USD/CNY to trade up to 6.30 this month.

This trend to a weaker Renminbi is also a clear sign that like the RBA, ECB and others the PBOC knows a weaker currency can aid its economic growth.

The big question for the global economy is: Can the US dollar and the US economy do all the heavy lifting on its own?

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