The Peoples’ Bank of China just shifted its official exchange rate for the second day running, effectively allowing the yuan to tumble by another 1.9% against the dollar, after a 1.9% cut on Tuesday.
Tuesday’s cut was the biggest single move in a day, and together they take the Chinese currency back to where it was to the dollar in October 2012.
The PBOC has fixed the yuan at 6.3306 to the US dollar on Wednesday morning, weaker than where the spot price closed yesterday at 6.3250.
The yuan has weakened further — as of 7:25 a.m. London time (2:25 a.m. ET) it’s at 6.444 against the dollar.
On Tuesday the PBOC fixed the USD/CNY at 6.2298, nearly 2% below the level seen on Monday following an unexpected currency devaluation.
Here’s how it looks:
Over the longer term it’s clear to see that China’s currency has strengthened considerably against the dollar over the last decade.
The PBoC is trying to reverse some of that trend — in fact, the China is pretty much the only major trading partner of the United States whose currency hadn’t already tumbled against the dollar in recent years:
Though the Shanghai Composite is pretty flat, down just 0.20% as of 7:30 a.m. London time (2:30 a.m. ET), other Asian markets are getting smoked. Japan’s Nikkei is down 1.58% and Hong Kong’s Hang Seng is down 2.11%.
European luxury exporters and premium car firms like LVMH and BMW got hammered yesterday too, a process that could resume again shortly.
A devaluation typically benefits a country’s domestic producers, boosting their ability to export. That’s because their goods are suddenly cheaper on international markets. A product that was worth 100 yuan two days ago is now effectively worth more like 96 yuan, if you’re buying in dollars.
The opposite side of that is that it hurts anyone trying to export into China, since products denominated in other currencies are effectively getting more expensive.
The Chinese authorities are effectively trying to stimulate the economy, which has seen slowing growth in recent years. It remains to be seen just how much of a devaluation they’re willing to engineer to achieve that goal.
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