Australian Dollar Falls on Shock Second Yuan Cut
The Australian dollar and South African Rand have been hard-hit by a second devaluation in China's Renminbi.
“Companies that invoice in yuan will gain from the move. It you import from China and are not already doing it, you should seriously consider yuan invoicing in future.” - John Cairns, Rand Merchant Bank.
China devalued their currency again overnight, somewhat against their comments yesterday that the initial move was a one off.
This has left uncertainty in the market which generally leads to safe haven buying.
The devaluation in the yuan has placed fresh upside pressure on GBP/ZAR, with a jump to 20.0185. Back to all-time record highs.
The Australian dollar meanwhile slipped further to 2.1446 - back to its highest levels since 2009.
“The multi-day rand outlook is now dependent on the yuan. The more the yuan falls, the more the rand will fall. The more volatile the yuan, the more volatile the rand. The faster the market gets some clarity on what the Chinese authorities intend, the faster the rand will stabilise.,” says John Cairns at Rand Merchant Bank in Johannesburg.
The Australian dollar meanwhile remains a proxy play for exposure to China; the devaluations confirm China is increasingly concerned over its slowing economy. The Aussie dollar could fall yet further.
Yuan weakness is negative for commodity prices as it raises the yuan price for mainland consumers.
Asian stocks moved lower overnight on China’s second devaluation move and commodity prices continue to get crushed on a questionable Chinese and thus global growth outlook.
Importantly, Cairns has this advice for exporters: “Companies that invoice in yuan will gain from the move. It you import from China and are not already doing it, you should seriously consider yuan invoicing in future.”
Aussie Dollar Devaluing
The Reserve Bank of Australia – which is in a quest to devalue the Aussie dollar – will surely welcome the unexpected assistance from China.
There are concerns however that a weaker Yuan will further hamper the ability of Chinese importers to buy Australian product. A devaluation is only welcome when the counter-currency rises.
So from that perspective declines in AUD/USD and rises in EUR/AUD and GBP/AUD will be welcomed.
The debate is now raging on why the PBoC made this move.
On the surface the move increased flexibility which suggests a play towards including in the IMFs SDR.
“However, there needs to be some consideration that today's adjustment is geared towards a competitive devaluation as a part of the regional stealth currency wars that have been waging for years now. This line of thinking indicates that the war has taken a serious turn,” warns Arnaud Masset at Swissquote Bank.
SA Power Issues Take Centre Stage
Regarding South Africa's domestic agenda, power issues were a major focus yesterday.
President Zuma said that electricity shortages are taking around 1% off growth per year.
He also said that the nuclear build programme is at an advanced stage, with procurement to be concluded this financial year.
Eskom, meanwhile, has formally shifted its building programme targets: Ingula is now targeted to come online in 2Q16, Medupi to fully produce in 2019 and Kusile in 2021.
