PBOC enters a new currency regime

The PBOC entered a new currency regime last night, effectively switching from a currency peg to a managed float. The move was probably motivated by two factors: (1) the delay of the SDR decision by nine months served as an encouragement to implement further reforms; (2) recent export data were much weaker than expected, suggesting a significant loss of competitiveness on the back of a strong RMB. The depreciation will help to reverse part of the 15% RMB appreciation, which should help the struggling Chinese economy. 

"Although the PBOC referred to the move as a one-off, our colleagues in Asia now see the bias for further depreciation and project that the CNY will reach 6.40 by Q2'16. This would amount to 5% depreciation over 12 months (including yesterday's move)," notes Societe Generale.