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China removes the USD peg, What are the consequences for us?
triage
post Posted: Jan 30 2016, 11:19 AM
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In Reply To: mercury's post @ Jan 30 2016, 07:02 AM

merc

Lots of conflicting analysis floating around about China so who is to know what will happen.

I've seen it argued that making its export sector more competitive would not be the primary motivator for the Chinese to devalue the yuan. Rather, it would be an attempt to stem the capital outflows, with estimates that up to US$185b moved out just in this month. Re the export angle the argument is that international trade in the products that China produce is very soft at the moment because most economies are suffering from concerns about deflation (perhaps an indicator of this is the BDI collapsing in the last year to record lows) and that anyway China is no longer an export driven economy (since 2008 its growth is more to do with construction and infrastructure).

But it is probably right that any significant devaluation of the yuan, whatever the mix of reasons, would send shock waves through China's international competitors and suppliers. For instance a 20% devaluation of the yuan would make Chinese produced iron ore 20% more competitive against Australian iron ore. Our manufacturing industry is already effectively gutted (a victim of a severe case of Dutch disease) but anything still going will also be poleaxed imo.

How Australia's free floating currency has worked since it was introduced in the 80's is that a lower Aussie SHOULD act as a shock absorber, which explains why when things go pear shaped for us our currency plunges but our economy remains relatively resolute (for instance we were about the only developed economy not to go into recession during the GFC but the Aussie shat itself). I have to say though that that mechanism does not appear to be working so well currently. Our major strength since the GFC, iron ore, coal and increasingly gas, have been in the pits for months now. We have about the highest real estate prices (relative to incomes) in the world (but for HK) and whilst our public debt is not relatively high we have the highest private debt levels in the world. And yet our currency has "only" fallen about 30% from when the commodities super cycle was at its peak. I suspect that a 20% devaluation of the yuan may be the trigger for the Aussie to find fair value pretty quickly but I am not sure that the Chinese authorities will actually devalue the yuan in one giant step (???).



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"The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought." Rudiger Dornbush

Mozart fixes everything and Messi is a dog

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mercury
post Posted: Jan 30 2016, 07:02 AM
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In Reply To: mullokintyre's post @ Jan 29 2016, 04:46 PM

so if China were to devalue, as they seem to be doing already, it is for the purpose of selling more of their goods to other countries.

This is turn makes manufacturing in Australia and America and other countries less competitive with China.

does this mean that our money will move further down , or only that it is harder to compete with the YUAN.?




Should Australia be worried?




 
KianJ
post Posted: Jan 29 2016, 04:48 PM
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In Reply To: mullokintyre's post @ Jan 29 2016, 04:46 PM

YES AND

BOJ will cut further.

 
mullokintyre
post Posted: Jan 29 2016, 04:46 PM
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From The ABC


QUOTE
The Bank of Japan has shocked global markets by driving its official interest rates into negative territory.

In a close run five to four vote, the central bank board moved the official interest rate down a notch from 0 to -0.1 per cent.

In addition, the BoJ will maintain its quantitative easing program, expanding its asset base at a rate of 80 trillion yen ($930 billion) a year through buying up Japanese Government bonds, stakes in real estate trusts and electronically traded funds.

The main Japanese share market index, the Nikkei, initially surged on the news but slumped back into the red afternoon trade, before rising again to be up 2.3 per cent by 4:33pm (AEDT).

The Australian dollar rose nearly 2 per cent against the Yen, while the US dollar was up 0.8 per cent.

IG market analyst Angus Nicholson said the volatile share reaction reflected optimism about increased Japanese export competitiveness versus fears of a new currency war.

"The fact markets pared back this bounce soon after the announcement may in some respects reflect growing market concern that central banks are delving into a tit-for-tat currency devaluation war," he wrote in a note.

"The grand macro-economic elephant in the room is what happens if China is forced into a major one-off devaluation in retaliation.



Just what we need, another escalation in the currency wars. Will this push the Chinese into a massive devaluation??

Mick



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triage
post Posted: Jan 28 2016, 10:05 AM
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More mutterings that it is a near certainty that the Chinese authorities will be forced to devalue the yuan against the greenback by around 20%.

http://www.reuters.com/article/uk-china-fo...s-idUSKCN0V50YC

Of course the very fact that just about everyone apparently is now betting on a devaluation means that something else is likely to happen. Using George Soros's theory of reflexivity the Chinese authorities will be doing everything possible to ensure that this outcome, which would enrich all those "viscous" foreign speculators, does not happen.

But at the moment it seems they are standing square on and flat-footed throwing haymakers in the form of billions of dollars to try to repel the attack on the yuan but with little effect. If they are not knocked out before hand, sooner or later they will smarten up and step to the side and throw some punches from unexpected angles. If they start to fight smart, and the probability is that as seasoned street fighters they will, at the end of this bout the yuan will be still standing and the Chinese authorities will be able to claim some sort of points win.

But whatever the outcome for China I suspect that the Australian economy and our currency will have been badly pummeled.





--------------------
"The market can stay irrational longer than you can stay solvent." John Maynard Keynes

"The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought." Rudiger Dornbush

Mozart fixes everything and Messi is a dog
 
nipper
post Posted: Jan 15 2016, 07:20 PM
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In Reply To: nipper's post @ Jan 7 2016, 06:56 PM

QUOTE
thanks AFR or spellcheck

the story is
QUOTE
Each weekday afternoon when her housework is complete, Shanghai grandmother Wu Lindi begins her other life as a black market currency trader.

The 63-year-old retired accountant can be found in the waiting area of a state-owned bank in the city's former French Concession, calculator and cash bundle at the ready.

Despite it being illegal to exchange foreign currency in this manner, Wu is not hiding. Indeed, the security guard at the bank directs us her way when we inquire about purchasing US dollars.

This is China's underground money network in action. It allows the country's capital controls to be circumvented and commerce to continue more freely. But in recent weeks as the turmoil on China's stock markets rolled on, Wu's business has been distinctly one-sided.

"Everyone just wants US dollars," she tells AFR Weekend. "But it's getting harder to find people willing to sell dollars for yuan."

This reluctance to hold yuan is part of a continuing evaporation of confidence in the Chinese unit, as many believe further devaluation is not just inevitable, but Beijing's only way out of the current mess.

That's why the currency, rather than the stock market, is the big story in China this year, as it has the potential to disrupt the fragile economic recovery under way in many parts of the world.
http://www.afr.com/markets/currencies/chin...20160114-gm6bzj

or
QUOTE
You don't need to be a finance expert to know that something's wrong when an interest rate reaches almost 70 percent. With China's growth outlook darkening and capital flowing out of the country, speculators have been betting heavily against the yuan. The People's Bank of China effectively declared war on them in early January, directing state banks to buy large sums of the currency in Hong Kong to support its value and burn the short sellers.

With the yuan suddenly scarce in Hong Kong, the annualized cost of borrowing it overnight there hit 66.82 percent on Jan. 12—more than 10 times the usual interest rate. (It receded to 8 percent the next day.) Michael Every, head of financial markets research at Rabobank Group, called the rate spike "murderous" and predicted that things wouldn't end well for Chinese authorities. Central banks "usually win a round like this, but lose in the end," he told Bloomberg.
http://www.bloomberg.com/news/articles/201...-capital-flight

all going to end in tears?



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nipper
post Posted: Jan 7 2016, 06:56 PM
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In Reply To: triage's post @ Jan 7 2016, 01:51 PM

QUOTE
Global markets are facing a crisis and investors need to be very cautious, says billionaire George Soros. China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world, Soros said in Colombo. A return to positive interest rates is a challenge for the developing world, he said, adding that the current environment has similarities to 2008.

Global currency, stock and commodity markets are under fire in the first week of the new year, with a sinking yuan adding to concern about the strength of China's economy as it shifts away from investment and manufacturing toward consumption and services. Almost $2.5 trillion was wiped from the value of global equities this year through Wednesday, and losses deepened in Asia on Thursday as a plunge in Chinese equities halted trade for the rest of the day.

"China has a major adjustment problem," Soros said. "I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008."
http://www.bloomberg.com/news/articles/201...orge-soros-says



--------------------
"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
triage
post Posted: Jan 7 2016, 01:51 PM
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I see that for the second time this week the Chinese stocks markets have been shut down for the day by recently installed automatic circuit breakers: if they drop by 5% they stop trading for 15 minutes but if they drop by 7% or more in intraday trading then they are closed down for the rest of the day.

A reason commonly given for Monday's shut-down was to do with all those shares that were suspended from trading back in August when the Chinese stock markets first hit turbulence being able to be traded from this Friday. That suspension has now been extended so that can not be used as an excuse for the time being.

However today's shut-down - which happened fairly early in the trading day - is being explained as a reaction to the authorities setting the RMB for the day at a lower rate than was apparently expected.

http://www.bloomberg.com/news/articles/201...300-declines-5-

I've seen talk that the RMB either needs to be floated by the Chinese authorities or else they do a one-off devaluation against the USD - as much as by 30% - otherwise they are going to be plagued by massive capital outflows (which sooner or later will force them into action anyway).

At the end of last year the Chinese authorities indicated that they were no longer monitoring the RMB against the greenback by itself but rather were using an index of numerous currencies. This gives an answer they are happier with - against the greenback the RMB is increasingly expensive but against the cross rates it is performing okay - but they cannot get away from the grim reality that the USD is the sole benchmark that counts.

Not sure where this goes from here. Does the RMB need to change or is it the USD's position more under threat?





--------------------
"The market can stay irrational longer than you can stay solvent." John Maynard Keynes

"The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought." Rudiger Dornbush

Mozart fixes everything and Messi is a dog
 
mullokintyre
post Posted: Dec 22 2015, 04:43 PM
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Another step in Chinas plan to make the yuan a world currency??

QUOTE
Zimbabwe plans to make the Chinese yuan legal tender in a deal that will result in $US40 million ($55 million) of debt being cancelled.

The southern African nation abandoned its own dollar in 2009 after hyperinflation — which peaked at around 500 billion per cent — rendered it unusable.

It then started using a slew of foreign currencies, including the US dollar and the South African rand.

The yuan was later added, but its use had not been approved yet for public transactions in the market dominated by the US dollar.

Use of the yuan "will be a function of trade between China and Zimbabwe and acceptability with customers in Zimbabwe", the country's Finance Minister Patrick Chinamasa said.

"They (China) said they are cancelling our debts that are maturing this year and we are in the process of finalising the debt instruments and calculating the debts."

Zimbabwe's central bank chief John Mangudya was in negotiations with the People's Bank of China "to see whether we can enhance its usage here", the Minister said.

China is Zimbabwe's biggest trading partner following Zimbabwe's isolation by its former Western trading partners over Harare's human rights record.

In reaction veteran President Robert Mugabe adopted a "look East policy", forging new alliances with eastern Asian countries and buttressing existing ones.

In early December, Chinese President Xi Jinping stopped over in Zimbabwe in a rare trip by a world leader to the country, and presided over the signing of various agreements, mainly to upgrade and rebuild Zimbabwe's infrastructure such as power stations.

Zimbabwe YUAN??

All I can say is good luck to them.
The Mugabe regime will take them for a ride just like they have all the western countries.
Its a bit like invading Afganistan. Every one thinks they can do it where the last country failed.

Mick




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triage
post Posted: Oct 18 2015, 06:41 AM
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Here is a link to a recent article by Jeffery Sachs in which he argues that China has allowed its currency to become overvalued for the same reason the Japanese allowed the yen to become overvalued post the 1980's: US pressure. His view is that just as the overvalued yen brought on Japan's financial crisis and economic malaise so too will the overvalued yuan negatively impact China's circumstances.

https://www.project-syndicate.org/commentar...d-sachs-2015-10

I am aware that Prof Sachs is a leading authority in the area of poverty and third world economics but anytime I have attempted to read any of his stuff I get a similar vibe to reading much of John Pilger's political writings in that no matter what the question is the answer is that the US is at fault. In this case I think the yuan has become overvalued mainly from the actions of the Chinese themselves in response to the 2008 crisis.

At the end of the article he dismisses reasons given by the Economist for China not to devalue the yuan as being "conventional western thinking". I would argue that the reasons given by the Economist are also likely "conventional Chinese thinking". In any case Prof Sachs obviously thinks the Chinese should devalue their currency to avoid the malaise suffered by Japan.

He at no time in the article seems to address the fact that both Japan and China allowed massive credit bubbles to form. My own suspicion is that unless the Chinese find a way to fix that mess then everything else will remain unstable. The Japanese attempted to fix their credit bubble by nationalising private debt rather than take the hit and allow much of that debt to default and here they are 25 years later still with a zombie economy. The Chinese fixed a smaller credit bubble in the late 90's also by nationalising bank debt (and also by allowing banks to pay negative real interest rates on bank deposits) so maybe they will try that approach again this time around (?).




--------------------
"The market can stay irrational longer than you can stay solvent." John Maynard Keynes

"The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought." Rudiger Dornbush

Mozart fixes everything and Messi is a dog
 
 


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