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The SET tanked 0.83% to close at 1,408.32 on Tuesday after the People’s Bank of China (PBoC) devalued the yuan by 1.9% against the U.S. dollar. The PBoC now pegs the yuan to the U.S. dollar at about 6.2298 yuan per dollar, compared to 6.1162 on Monday and lets it trade as much as 2% on either side of what is known as the parity rate. In the PBoC statement, the devaluation was a one-time move to realign the rate set by the central bank with the yuan’s value in the market, which had been pushing near the lower end of the trading band.
The PBoC can’t do much else to depreciate its currency in order to boost its exports, after trade data showed Chinese exports slumped 8.3% in July. Widening the daily trading band from 2% could be seen by the United States as currency manipulation, as the United States already warned Beijing last year about Chinese currency depreciation.
The spread between the China renminbi (CNY) or Mainland yuan, and the Offshore yuan (CNH), traded in Hong Kong, surged to 9.98 bps on Tuesday as the USD/CNY and USD/CNH exchange rates traded to an intraday high of 6.3324 yuan per dollar at 2:35 PM GMT and 6.4322 yuan per dollar at 1:50 PM GMT, respectively. The widening gap between the Mainland and offshore yuan spot could cause problems for the PBoC as Beijing is trying to close the arbitrage window and deter capital outflows.
The USD/THB exchange rate was quoted at 35.377 baht per dollar, up 0.81% at the close on Tuesday, above the key technical level of 35 baht per dollar. The CNY/THB exchange rate printed at 5.5926 baht per yuan, down 1.04% at the close on Tuesday. The bottom line is that a cheap yuan will force China to import less and may discourage Chinese tourists from traveling abroad.
From our technical viewpoint, the SET just broke down the near-term support at the 1,412 level. The relative strength index (RSI) is on a downward trend, signaling return of a near-term sell-off. The SET lower high (L-H) chart pattern continues, as every high is lower than the previous high while every low is lower than the previous low. There is a good chance that the index could fall below the 1,400 level this week. |
