The Aussie dollar was hammered from the moment the news hit the screens early today that Chinese Authorities had devalued the RMB by 1.85%.
Currently sitting at 0.7331 the Aussie is down a little over 1% but more than 30 pips off the low of 0.7306.
While it makes sense that the Aussie was lower if traders were downgrading their view on Chinese growth, the correlation, in terms of the instantaneous timing of the move, was so fast that traders likely had little time to make this leap.
So, we asked Ray Attrill, NAB’s co-head of global currency strategy what was going on. Attril told us: “The move down was a classic example of the AUD being the most liquid proxy trade for USD/Asia; so yes in that sense very much a knee jerk move.”
Attrill said the move today toward RMB devaluation was somewhat of a technical move from China which was “designed to align the onshore RMB with the offshore rate which had been anticipating a move to allow a weaker onshore RMB”. That means also that PBOC intervention to further weakness is likely to be diminshed.
Longer term that’s good news for Australia and the Aussie dollar. Attrill said:
To the extent we are seeing recent PBoC easing measures working (evident in today’s strong bank lending and money supply data) and this currency move adds to stimulus/slightly improves export competitiveness, it will be good for Australia (improved commodity demand) as growth re-strengthens/export demand improves
But any talk of Aussie dollar appreciation is best left for another day, Attrill said. Indeed it is. In the meantime the Aussie is just the big liquid currency proxy for USD/Asia.