After a brief hiatus from the ongoing currency wars, China fired another salvo at The Fed tonight by devaluing the Yuan fix to 6.5693 - its weakest against the USD since March 2011. After eight days higher in a row for The USD Index, it seems PBOC has turned its currency liberalization plan off, stabilizing the broad Renminbi basket (which has been steadily devalued) and turning its attention to devaluing against the USD.
Yesterday, when reporting on the latest development in China's ongoing under-the-table stealth nationalization-cum-bailout of insolvent enterprises courtesy of a proposed plan to convert bad debt into equity, we noted that while China has already managed to convert over $220 billion of Non-performing loans into equity, concerns - both ours and others' - remained.
Just as we warned was probable, The PBOC sent a message loud and clear to the newly hawkish Fed following today's surge in the dollar after the minutes were released. With the 2nd biggest daily devaluation since the August collapse, China pushed the Yuan fix against the USD down to its lowest since early February - barely above the January lows.
After weeks of "stability," and following two emergency Fed meetings in 3 days (and an unexpected ease by MAS), The PBOC decided today was the right time to drastically slash the Yuan fix by 300 pips. This is the largest devaluation of the Chinese currency since January 7th (and second largest since August's world-market-turmoiling devaluation).
In the latest revelation of just how far China, and its central bank, are willing to go to prop up its ailing local stock market, on Thursday the official Shanghai Securities News reported that China's foreign exchange regulator has bought mainland stocks worth over 27 billion yuan ($4.18 billion) via three low-profile investment firms it controls.