Why China’s Yuan May Be Set for 15% Devaluation

China is mulling a 15-20 percent devaluation of its currency by the end of 2016 in a move that could spark a crisis in Asian markets, according to research firm IDEAglobal.

It cited an interview it had conducted with a “reliably-informed Asian source” in a release published late on Tuesday.

China, the world’s second-largest economy after the U.S., devalued its currency last month in a bid to help exporters. The country is grappling with a softening economy and wild swings in the stock market.

“Having achieved a 3 percent move in a few weeks, they would not want to stop here. Their ultimate target is probably a 15 to 20 percent minimum move in the trade-weighted index,” IDEAglobal cited the source as saying in an interview.

The yuan was trading at about 6.3708 per dollar on Wednesday, having weakened to four year-low around 6.45 after last month’s surprise devaluation.

According to the source, the push for a weaker yuan has to be seen in the context of sharp falls in other Asian currencies such as the Japanese yen that have given Japanese exporters a competitive edge.

The Japanese yen has shed more than 50 percent of its value against the dollar in the past three years against a backdrop of aggressive monetary stimulus from the Bank of Japan.

China’s surprise yuan devaluation last month meanwhile sparked fresh concerns about a global “currency war” – whereby countries devalue their currency in a tit-for-tat scrabble to gain a competitive edge — and unfair protection of exporters by Beijing.


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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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