Yuan tumbles on rate cut

The yuan closed down about 0.1% to 6.3705 and the central bank raised the fixing to 6.3188 on Friday. At this fixing and close, the yuan is down 0.8% from the fixing and the central bank allows it to float within a 1% band. Here's a chart of the renminbi against the daily fixing, through June 7 (yesterday).

This shows the central bank has thus far failed to push the renminbi higher, but if it keeps moving the fixing, it can force the market lower—at the risk of dollar outflows. If they go with the market and allow depreciation, 6.40 would be the first level to watch for, since beyond that level the renminbi will very quickly hit a 52-week low versus the greenback.

The renminbi is appreciating versus the euro and this is not across the board weakness, but many investors still watch the U.S. dollar cross, it's still the bulk of the currency basket and it's important politically. And if China wants to ease its currency to help with export to Europe, it will have to depreciate against the dollar, at risk of it becoming a big issue in the U.S. presidential campaign, where Romney and his surrogates continue to say he will name China a currency manipulator on day one in office.

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