Ok, so it was just a couple of hours ago when we ran a post called “The Market Has A New Safe Haven Asset – But You Missed The Rally.”
You can (and probably should) read it in its entirety, but suffice to say we suggested the yuan was overbought. Here’s the chart we used:
And here’s an excerpt:
Remember (or maybe “ren”member” is better – get it?) this is all about expediency and prioritizing for China. In late May/early June, the priority was making sure they got out ahead of the Fed in case a hawkish interpretation of the rate hike caused yield differentials to move in favor of the dollar. Earlier in the year, China simply hiked OMO rates following the Fed, but that wasn’t an option in June as the market was worried about overtightening. So they simply rolled back FX liberalization and squeezed the shorts, obviating the need to hike with the Fed.
Well now, with exports and imports starting to roll over, the question becomes whether expediency now calls for a weaker yuan.
The answer, at least for Friday, is apparently “yes” because we just got this from the PBoC:
- PBOC strengthened fixing by 0.19% to 6.66420
That compared to estimates of 6.6477 from Commerzbank, 6.6552 from Mizuho Bank, 6.6559 from Scotiabank and 6.6549 from Nomura.
The result … this…
What you see in that chart folks, is the yuan falling the most against the dollar since January:
So when we said earlier that you “missed the rally,” it looks like we were more correct than we realized.
Let’s see how it plays out overnight and we’ll update this once the dust settles…