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After the PBoC weakened the Yuan’s reference rate by the most in two years this morning, the CNY passed 6.800 in the early going, notes the research team at Deutsche Bank.

Key Quotes

“Having weakened by an average of 0.88% in each of the five weeks prior to this. With the PBoC refraining from intervening, authorities in China turning towards further monetary loosening, the PBoC announcing this morning that China’s leverage ratio has stabilised and China officials hitting back at the US for accusing China of stalling trade talks – suggesting then that there is no evidence of de-escalation on the trade war front – one has to wonder when the broader market will start to react even more.  DB’s George Saravelos noted yesterday that it might be that the CNY at 7.0 is a level assets can no longer ignore.”

“Despite there being very different drivers, the recent CNY move is reminiscent of the 2015 devaluation although the actual magnitude of the current move is larger. To put some numbers around all this, if we use the start date of the recent CNY slide as the 14th of June, then the following are some of the moves for a select group of assets. First and foremost the CNY and CNH have weakened -6.14% and -6.32%, respectively, (the magnitude of the CNY devaluation in 2015 was closer to 3%, although in fairness it did continue to weaken for all of 2016).”