China will not tolerate economic weakness
If it wasn't blaringly obvious after rate cuts, banning short selling and massive interventions in the stock market; it is now. There is no reform in China, no short-term-pain-for-long-term-gain.
This isn't the China that's legendary for 100-year planning.
The leadership wants growth at any cost. Now.
This is a green light to buy the US dollar in the short-term but it's terrible news if you were hoping for any kind of US manufacturing renaissance. The Fed is blind to the FX war raging around the world and 2-3 years of a strong US dollar will undercut any strength that's slowly building.
There will be talk that Congress could retaliate and it will be as laughable as the last 100 times they said it.
What's next?
That depends on how much you believe today's adjustment is a "one-off". The yuan is selling off so all you really need to do is convince people that it might not be and they'll race to the exits and do the work for you.
Either way. It harkens back to the earlier point that they won't tolerate slow growth. Then the question is: Do you want to fight the PBOC?
The Australian dollar selloff is a kneejerk move, but it's not the right one. China is signalling a reckless addiction to 7% growth and that's great news for Aussie exports (and all commodities).
