The People's Bank of China (PBOC) recently devalued its CNY by resetting the PBOC midpoint or the central parity rate to see if market-maker quotes would be more consistent with the CNY closing level of the day before. That new midpoint was announced on Aug 11 at CNY6.2298/USD, weakening 1.82 percent from the Aug 10 rate of CNY6.1162/USD. The PBOC claims that this decision is a one-off correction to ensure a more market-oriented exchange rate hereafter.
Nonetheless, markets are waiting to see if the CNY will be traded in a direction more consistent with other regional currencies. Meanwhile, China's trade and current account surpluses will likely help slow CNY depreciation, as long as the Chinese authorities continue to restrict capital flows.
As for Thailand, KResearch is of the opinion that this forced devaluation should not have any detrimental effect to our tourism and exports, given that both the CNY and THB have fallen. Moreover, declines in our shipments to China have principally been a consequence of falling global oil and other commodity prices that have affected the prices of our products sent to China. This situation is worsened by an oversupply there, causing Chinese operators to delay their submission of further orders to Thailand.
We expect that the PBOC will allow some depreciation to continue amid softening economic momentum there where it will employ occasional intervention to block speculative trading and thus lessen risks triggered by capital outflows. Given all this, we are inclined to believe that Asian currencies will be volatile in the months to come. The US rate trend and a weakening CNY will of course be factors, but slowing economic outlooks within ASEAN nations (especially Malaysia and Indonesia) where recoveries have been patchy, with weak external balances and low international reserves, will also come into play. These adverse factors will warrant closer scrutiny.
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