About Yuan devaluation.

Malaysia,Canada and Australia.

Today and yesterday, China  made a surprising devaluation of YUAN to support the market. Devaluation of currency is market-oriented, we have seen China tried to save their market by intervening into stock market for intsances cut interest rates, suspended initial public offerings, relaxed margin lending and collateral rules, enlisted brokerages to buy stocks and backed by cash from the central bank. All this movements devised to stimulate the market to be bullish. However its still fall, why its due to the economy fundamentals.

Alarming indicator would be the CHINA GDP growth itself. China GDP growth is an envy by many economy, its at staggering 7% and this numbers considered as a norm recent years. Can they sustain this?

Besides that, China’s factory output for July also missed expectations, coming in at 6% year-on-year growth instead of the 6.6% expected. Adding to the slew of bad data was retail sales for July, which amounted to approximately 2.43tn yuan, up 10.5% from June, but also short of market expectations of a 10.6% rise.

Devaluation is a monetary policy tool of countries that have a fixed exchange rate or semi-fixed exchange rate. It’s just like one of the complex central bank tools.

When outside currencies are much stronger, a country can attract international business with cheaper production and labor costs by having a lower valued currency. The move suggests China is looking for ways to get it going again. But it also has major implications for the U.S. and other countries that trade with China because it puts their companies at a disadvantage.

Some summary from analysts:-

•        If you’re running a Chinese business that imports goods, your costs just increased.

•         If you sell a lot of goods in China, you could see a slip in demand because the Chinese have less purchasing power. That could be especially problematic for a luxury goods business.

•        If you’re running a business outside China that sources goods in China, your costs just decreased.

•         If you’re a Federal Reserve official waiting for inflation to return so you can raise interest rates, the prior development will make that job a little harder.

•               If you’re a finance minister in a country whose exports compete with China’s, traders are going to put your currency under pressure because your economy might take a hit.

Some words that lend support is that this is one-off counter-measure, it means no more surprise movement by China in coming months. This term is definitely subject to revise and analysts are skeptical by hinting further tools will be applied to save the China market.