Following a slight retracement early in the morning, the USD dollar has enjoyed two spurts higher following the strong PPI report and again after the unexpectedly strong 10Y auction.
As a result of the dollar surge, the offshore yuan is tumbling, its biggest drop since January 2017, and has tagged 6.72, a level last seen during the mini Chinese freak out on July 3 which saw aggressively PBOC verbal intervention, and well beyond the central bank’s so-called “redline” below 6.70.
What is odd is that the Yuan rout continued even after the Commerce Dept announced it has signed an escrow agreement with Chinese telecommunications ZTE and once the the company has completed the $400m deposit, the agency would issue a notice lifting the denial order, allowing the company to resume business as usual, and ostensibly an olive branch from the Trump administration to China.
The dollar strength has been broad-based, and has pushed all key pairs lower against the greenback, with the EUR sliding below 1.17 and the USDJPY jumping above 1.12
It is unclear what specific catalyst may have caused today dollar rampage, but unless there is some intervention, most likely from the PBOC, the brief piece in emerging markets is unlikely to continue, and as Goldman warned earlier, “the terrible trio” may be about to manifest itself, resulting in rolling routs across the EM space in the coming days if not hours.