The Renminbi (Yuan) is continuing depreciating, in a likely move by the Chinese government to counteract the tariff war initiated by US President Donald Trump. Michael Pettis of the Guanghua School of Management at Peking University in Beijing in an interview for ftalphaville.com thinks that 1.5% depreciation of the Yuan is equivalent to the impact on the Chinese economy of a 10% tariff imposed by the US government.
There are three problems with devaluing the currency, however.
First, it works for China by spreading the cost of US tariffs on to all of China’s trading partners, and not just to the US, which may only increase global tensions.
Second, it may raise further concern among wealthy Chinese worried about protecting the value of their wealth and so intensify flight capital.
And finally, a devaluation works by transferring income from net importers, who in China are the household sector, to net exporters […] China needs to do the opposite, ie rebalance income in favour of ordinary households.
USDCHN gapped up last Monday. After two days of consolidation, now the exotic pair is seen and ready to make a breakout to higher values. The daily bullish, and the 4H is creating a transition today. If we see the 4H chart above, we can observe that the price went from the +3 line to near to the Bollinger mean-line. That transition is usual in consolidations. After that approach to the mid-line, it is also normal to resume with the previous trend.