China Forex Declines at August Pace

The dollar decline was a little smaller than August, and the one-month percentage drop was a little less (2.50% vs 2.57% in August), but the year-on-year percentage drop grew to a new high of 10.64% in November. CNH promptly slumped versus the U.S. dollar.

One thing to remember is that China has been diversifying away from the U.S. dollar. China joined the Greece bailouts a few years ago and invested heavily in resources and Africa investments. I was looking for the yuan to decline because I expected the U.S. dollar to rally and China to reduce its holdings of U.S. dollars. Way back in 2010 I wrote in The yuan can drop:

The U.S. dollar is still the engine pulling the currency caboose. Instead of looking at Chinese currency appreciation as inevitable, it's better to consider what direction the U.S. dollar will take against major currencies and whether the Chinese are increasing or decreasing U.S. dollar exposure. Since it is the latter, the yuan will weaken versus the U.S. dollar during a U.S. dollar rally against major currencies.

China's investments in commodities are a total disaster and the bottom isn't in yet.

I posted on the yuan yesterday, Continuation Pattern: Possible Cup and Handle in Yuan. A happy coincidence with today's drop in CNH, which pushed the currency closer to a breakdown versus USD. I would tend to look towards the run-up to Chinese New Year, or right after, for market volatility, but it may come early.

FT Alphaville: Oh look, we’re back to “record” Chinese capital outflows