Cheeky China

China just slipped out one of their classic year end changes to their currency regime (not their year end of course, just ours). This lovely press release is all in Chinese, but the table says it all:

china-basket-29-dec-2016

Instead of managing their currency to a basket of 13 currencies, they’re throwing in an extra 11 currencies. Which means they are reducing the portion allotted to USD from 26.4% to 22.4%. Which basically means two things:

1) Less reliance on the USD – cheekily meaning that they¬†don’t have to worry so much about their currency depreciating against a Trump-resurgent Dollar

2) Less need to intervene in those core 13 currencies – as they will spread the burden across more markets

Remember how, from the end of November, we noted “The World of One Trade” – and specifically how USD/JPY moved tick for tick with USD vs offshore China? Well logic might conclude that now we might see less of a correlation… and that the bid for USDs against those 13 original currencies might not be quite as large as it once was.

Oh, and for the currencies listed under THB in the table above, that’s from ZAR down to MXN, maybe there might be a little bit more movement in those currencies, now that the elephant in the room walked in.

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