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Asian Currencies Follow China’s Cue of Yuan Devaluation

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Aug. 12 2015, Published 12:46 p.m. ET

The PBOC devalues the yuan

The PBOC (People’s Bank of China) surprised markets and devalued their currency by 2% against the US dollar on the back of some weak data that came out in the week ended August 7, 2015. This devaluation means that Chinese exports will become cheaper compared to other countries. The reaction was evident in currency markets on August 11, 2015. Most Asian currencies depreciated against the US dollar.

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Asian currencies react to a rate cut

The above graph shows the percentage depreciation of Asian currencies against the US dollar on August 11, 2015. The Singapore dollar and South Korean won led the depreciation of Asian currencies against the US dollar as the PBOC came out with the devaluation. As you can see in the graph, the Japanese yen and Philippine peso showed reacted the least to the data. Asian currencies’ depreciation was expected. Without it, their exports would have become non-competitive.

Market impact

Asian ETFs took a negative cue from the PBoC’s decision to devalue the yuan. The iShares MSCI India (INDA) and the iShares MSCI Taiwan (EWT) fell 2.12% and 4.46%, respectively.

Japanese American depository receipts (ADRs) didn’t show highly negative sentiment. Sony (SNE) rose 0.81% and Mitsubishi UFJ Financial Group (MTU) fell 0.70%. Indian ADRs did show a negative trend. Infosys Limited (INFY) fell by 1.47%.

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