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    Yuan puts commodity currencies under pressure

    What is going on with China? Investors and economists are now trying to find an answer to this question after China’s exports statistics for the month of July came out this weekend. And let me remind you – it showed the decline in exports from China to 8.3% on an annual basis. And it’s not just about the export …

    In general, cyclical drop in the annual growth rate of China’s exports is not something unheard of. By the way, at the beginning of the last year this indicator fell much deeper on an annual basis than it has now, but then it quickly retraced back into the “green” zone. One shouldn’t worry too much, especially now, when Chinese authorities are able provide significant support to the national economy if necessary. Moreover, this support is already being provided. I’m talking about liquidity injections by the People’s Bank of China, and measures to support the stock market, as well as the central bank’s recent statement that the increase in prices for pork will not affect monetary policy. This means, that the central bank won’t be raising rates even in the event of accelerated growth in food prices – probably in order to avoid additional obstacles to economic growth.

    But this time, there is one unpleasant symptom – a collapse in producer prices. In July, they slowed down to 5.4% y/y, ie, the highest rate since 2009 (see the Chart). But in 2009, the global economy, as we know, was facing serious crisis. Then what is going on now? Is it the “second wave”?..

    china-producer-prices-change12-8-15

    Slow recovery of the global economy pressures the demand for Chinese export goods, even decline in producer prices is of little help to support it. Apparently, the seriousness of the situation forced the country’s government to take the next decisive step yesterday – the devaluation of the national currency.

    Commodity currencies – the Australian, New Zealand and Canadian dollars have suffered from the Yuan’s decline the most. And since many economists believe that the weakening of yuan’s exchange rate isn’t over yet, the “Aussie”, “Kiwi” and “Loonie” are facing the risk of falling to new multi-year lows.

     

    Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!

    What is going on with China? Investors and economists are now trying to find an answer to this question after China’s exports statistics for the month of July came out this weekend. And let me remind you – it showed the decline in exports from China to 8.3% on an annual basis. And it’s not just about the export …

    In general, cyclical drop in the annual growth rate of China’s exports is not something unheard of. By the way, at the beginning of the last year this indicator fell much deeper on an annual basis than it has now, but then it quickly retraced back into the “green” zone. One shouldn’t worry too much, especially now, when Chinese authorities are able provide significant support to the national economy if necessary. Moreover, this support is already being provided. I’m talking about liquidity injections by the People’s Bank of China, and measures to support the stock market, as well as the central bank’s recent statement that the increase in prices for pork will not affect monetary policy. This means, that the central bank won’t be raising rates even in the event of accelerated growth in food prices – probably in order to avoid additional obstacles to economic growth.

    But this time, there is one unpleasant symptom – a collapse in producer prices. In July, they slowed down to 5.4% y/y, ie, the highest rate since 2009 (see the Chart). But in 2009, the global economy, as we know, was facing serious crisis. Then what is going on now? Is it the “second wave”?..

    china-producer-prices-change12-8-15

    Slow recovery of the global economy pressures the demand for Chinese export goods, even decline in producer prices is of little help to support it. Apparently, the seriousness of the situation forced the country’s government to take the next decisive step yesterday – the devaluation of the national currency.

    Commodity currencies – the Australian, New Zealand and Canadian dollars have suffered from the Yuan’s decline the most. And since many economists believe that the weakening of yuan’s exchange rate isn’t over yet, the “Aussie”, “Kiwi” and “Loonie” are facing the risk of falling to new multi-year lows.

     

    Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!


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