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Image: Goldman: China Yuan Move Is Attempt to Get Ahead of the Fed

Goldman: China Yuan Move Is Attempt to Get Ahead of the Fed

Tuesday, 11 Aug 2015 08:41 PM

China’s shock devaluation of its currency is designed to cushion it from rising along with the dollar after a projected interest-rate increase from the Federal Reserve, according to Goldman Sachs Group Inc.

“This is about Fed liftoff most obviously and further dollar strength,” Goldman Sachs chief currency strategist Robin Brooks wrote in a note to clients.

“It certainly makes sense for China’s policy makers to buy some flexibility ahead of Fed liftoff, in particular since the fix had become very peg-like in its stability in recent months.”

Goldman Sachs projects the dollar strengthening 20 percent on a trade-weighted basis by the end of 2017.

The yuan fell the most Tuesday since China ended a dual-currency system in January 1994 after the central bank cut its daily reference rate by 1.9 percent.

China has stepped up efforts to boost old growth drivers as new ones fail to offset slowing investment and trade.

Developing markets are feeling the strain as domestic growth slows while the U.S. nears its first interest-rate increase in almost a decade.

Until Tuesday, China had kept the yuan steady against the dollar, effectively pushing it higher against other emerging-market currencies and hurting its exporters.

While the change is reminiscent of Swiss abandonment of the franc’s ceiling versus the euro in January, which anticipated quantitative easing from the European Central Bank, China isn’t looking to push the currency significantly lower, according to Brooks. The change is a one-time correction, a spokesman for the People’s Bank of China said Tuesday.

“Our bias is that the move overnight was more about buying flexibility as opposed to the beginning of a large devaluation trend,” New York-based Brooks wrote.


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China's shock devaluation of its currency is designed to cushion it from rising along with the dollar after a projected interest-rate increase from the Federal Reserve, according to Goldman Sachs Group Inc.
goldman, china, yuan, fed
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2015-41-11
Tuesday, 11 Aug 2015 08:41 PM
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