Talking Points:
• The PBoC spurred the biggest Yuan plunge in years after announcing a 1.9 percent drop in the Yuan fix rate
• A revaluation on China's currency carries heavy implications for trade partners like Australia and New Zealand
• This move can be viewed as a further escalation of the simmer 'currency wars' which inflate FX volatility
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Driving the Yuan sharply lower carries far broader implications for the global financial markets than just bolstering China's economic prospects. For the country at the epicenter of the policy shift, the risk of a backtrack on years of market liberalization may indicate a struggle to manage a soft landing for the economy. For trade partners, the implications of more expensive exports was felt immediately as currencies like the Australian Dollar, New Zealand Dollar and Japanese Yen dropped. Meanwhile, established reserve currencies - Dollar, Euro, Pound - took higher as a future SDR competitor seemed to dim. In general, the implications of escalating currency war efforts feeds a sense of uncertainty and thereby volatility in the FX markets. We look at the longer-term implications of China's move in today's Strategy Video.
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