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CNY Devaluation Strengthens USD

CNY Devaluation Strengthens USD

Today saw the PBoC take centre stage as the central bank devalued the CNY against the USD by the most on record in response to flagging exports and wishes by China for the CNY to be eligible for IMF SDR (Special Drawing Rates) inclusion. The move by the central bank saw an immediate impact during Asia-Pacific hours, with USD strengthening off the depreciating CNY, with this in turn filtering out to weakness in key pairs. Meanwhile, at the same time, antipodean currencies saw the inverse reaction and weakened as a result of their ties with China, while emerging market currencies also weakened as other central banks now face pressure to weaken their own currencies.

While the likes of AUD saw sustained weakness throughout the day on the back of the China news, USD saw the move reverse as European participants came to market and EUR saw a bout of strength to weigh on the greenback. EUR strengthened as some desks noted a reversal of a substantial EUR/CNY short carry trade, while the move also came in tandem with news today that Greece and creditors have reached a deal on a third bailout. While the deal still has to be passed in Greek parliament, this is widely expected to be a non-event as previous Syriza party rebellions have failed to block the vote, while since the last significant rebellion, PM Tsipras has appeased members through announcing an emergency Syriza party congress after the latest bailout talk has been passed.

Looking ahead, tomorrow will likely see participants looking out for any further rhetoric from the PBoC during Asia hours, as well as keeping an eye on the Greek parliamentary vote, while in terms of speakers, comments are expected from Fed’s Dudley and RBA’s Lowe, and tomorrow’s key data points include Chinese retail sales and industrial production, UK unemployment data, and US JOLTS job openings.

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