Focus of the day:
"We suspect many reasons will be put forward for why Chinese policymakers acted this week to "devalue" the CNY, ranging from the dramatic (the start of a structural depreciation trend for the CNY due to worse-than-expected Chinese economic and financial weakness) to the mundane (a mere technical adjustment linked to market liberalization with no extended impact).
…Currencies like the AUD and NZD lose out if CNY weakness is symptomatic of weaker-than-expected Chinese growth and commodity imports demand.
The likes of EUR and CHF lose out due to further disinflationary pressures on their central banks as well as directly through the importance of China as a market for exporters from key countries like Germany and Switzerland.
The JPY should also lose ground for a combination of all these factors.
GBP at first sight should be less affected to the extent that markets believe domestic labor market developments are sufficiently positive to leave open the possibility of rate hikes.
…We have been USD-bullish against most G10 and EM currencies primarily due to growth and policy divergence considerations. The new possibility of a phase of persistent CNY weakness adds a fresh impetus for this view."
Shahab Jalinoos, Matthew Derr – Credit Suisse
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