Currencies started 2016 on a weak note. China depreciated the Chinese yuan beyond 6.50 against the US dollar. Closing at 6.5338 yesterday, the CNY fell 0.6% on the first trading day, after a full-year decline of 4.5% in 2015. Trading was suspended in China stocks after they fell by 7%. With manufacturing/trade activities weak, and real GDP growth expected to slow further below 7% towards 6.5%, more rate cuts are expected in China. Against prospects for the Fed to normalize monetary policy this year, the CNY is expected to stay weak. All are on alert for China to fix its exchange rate lower again today. 

As a safe haven from the tensions in the Middle East, the Japanese yen was favored over the Swiss franc. The risk aversion was also reflected by the buying of yen against the commodity currencies. Despite the Mideast tensions, oil prices could not rally due to oversupply concerns. Global stocks, as measured by the MSCI World Index, were down almost 2% to its lowest level since Oct 2015. Not surprisingly, most emerging market currencies fared poorly, not just versus the USD, but also against most of the G7 currencies. Stay defensive.