China Risks US Revenge

Is the PBoC starting to guide the yuan downward outright against the dollar after two years of trying to boost its value? The move seems to be reflecting concern in Beijing over China’s slowing economy. Is this enough of an excuse to risk a political fight with the US? Market perception is beginning to think that way now that the yuan has been trading at the lower end of its government mandated range this week. Up to this point investors figured that it was a one way speculative trade outright. The PBoC has fixed USDCNY at 6.3325, 56 pips lower than yesterday’s fix but still substantially higher than levels at the beginning of the month. Perhaps a reversal towards CNY strength according to analysts will come after the political transition in October along with signs of recovery in domestic growth in the latter half of the year.

Below are some other highlights of the week:


  • JPY: The week started with the Japanese finance minister again warning the market that the government will watch future currency moves with a heightened sense of concern.
  • SGD: Singapore’s headline inflation rose to +5.3%, y/y, in June, up from +5% in May, and above consensus for a more modest rise to +5.1%, y/y.
  • AUD: Aussie PPI rose +0.5%, q/q, in Q2, compared with fall of +0.3%, q/q in Q1. Also, it rose +1.1%, y/y in Q2, following +1.4% rise in Q1.
  • CNY: The HSBC China Flash Manufacturing PMI rose to 49.5 July from 48.2 in June, marking the first increase in three months. New orders rebounded to 48.9 in July from 46.8 in June, and export orders rose to 48.2 from 45.9. The final PMI release is due out on 31 July, and markets are expecting a 50.2 reading.
  • AUD: RBA Governor Glenn Stevens noted a more upbeat outlook for the domestic economy in his speech titled “The lucky country”. Stevens said that Australian domestic vulnerability to global panic has diminished, and that although China has slowed, its recent data suggest that this is a normal cyclical slowing rather than a sudden slump. He saw scope for policy to adjust if world growth slumps and argued that in the case of any new sharp rise in global stress, the AUD would likely weaken, providing stimulus for the Australian economy.
  • THB: The BoT kept the policy rate unchanged at +3%, in line with consensus.
  • CNY: China’s Ministry of Industry said economic growth will likely pick up in the second half of 2012 and the ministry will seek to prevent industrial production growth rate from sliding further.
  • IMF: They said that China’s slowing economy faces significant downside risks and relies too much on investment, and urged its “leaders to boost consumption and channel households’ savings away from housing.”
  • AUD: Aussie headline inflation came in at +1.2%, y/y, or +0.5%, q/q, up from +0.1% in Q1, and a touch below consensus of +0.6%. The underlying measures of inflation are more or less in line with expectations with the trimmed mean at +0.5%, q/q, and weighted median at +0.7%. Does this give the RBA more room for cuts?
  • JPY: Japan unexpectedly posted a merchandise trade surplus of +Â¥61.7b in June, compared with a deficit of +Â¥910.4b in May. Exports contracted -2.3%, y/y, in June after rising +10%.
  • SGD: The MAS tightened its forecast range for inflation, effectively raising it, to +4.0%-4.5% from +3.5%-4.5% as part of its annual report released this week.
  • KRW: South Korean consumer confidence was at 100 in July, down from 101 in June. The Bank of Korea Governor Choong Soo said he sees downside risk to this years growth target of +3%, citing Europe’s protracted debt crisis.
  • THB: Thailand’s June exports fell -2.5%, y/y or -5.6%, m/m on a seasonally adjusted basis.
  • NZD: Kiwi annual trade deficit narrowed to -NZ\$747m in June, compared with the -NZ\$876m revised deficit in May. Imports fell to +NZ\$3.87bn, but exports were more resilient at NZ\$4.2b.
  • PHP: The Philippines’ total imports rose by +10.1%, y/y in May, compared with -13.6% in April.
  • NZD: The Kiwis at the RBNZ left the cash rate unchanged as expected and kept the tone in the statement fairly neutral. The bank highlighted the continued recovery in domestic housing market activity and reconstruction in the Canterbury region, but acknowledged offsetting effects from the poor global growth outlook, fiscal consolidation, and the strength of the currency.
  • PHP: The Philippines central bank (BSP) cut its policy rate to a new low of +3.75% from +4%, against consensus for rates to be on hold. The move is cited as preemptive to a global slowdown and in response to receding inflation pressures.
  • KRW: Korea’s GDP rose +0.4%, q/q in Q2, down substantially from +0.9% in Q1 and weaker than consensus expectations for a +0.5% rise.
  • JPY: Japan’s corporate service price index fell -0.3%, y/y in June, after rising +0.1% in May, dropping for the first time in three-months.
  • JPY: Japan’s core CPI fell +0.2%, y/y in June, following a -0.1% dip in May. Separately, retail sales rose just +0.2%, y/y in June, compared with rise of +3.6% in May.
  • THB: Thai manufacturing production fell sharply in June, down -9.6%, y/y after +6% rise in May. The sharp fall in manufacturing production and softer exports will likely fuel expectations of rate cuts in Thailand, especially following the dovish shift at the last BoT policy meeting and recent cuts by other central banks in the region.
  • KRW: South Korea’s current-account surplus widened to +\$5.8b in June, compared with a revised surplus of +\$3.6b in May.






  • Monetary Policy meetings from GBP, USD and EUR dominate
  • Confidence data is delivered from USD and NZD
  • Manufacturing and non along with PMI’s are released in CNY, EUR, GBP and USD
  • Sales, growth and trade are presented from CAD, AUD and CHF
  • AUD and GBP release building stats
  • USD finishes the week with employment


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell