Yesterday's devaluation of the yuan by the Peoples' Bank of China (PBC) delivered a shock to the financial system. Although stimulus is normally seen as a positive for markets, devaluation is a stimulus measure that benefits the home economy (China) at the expense of trading partners. Concerns that the devaluation means the economy in China is travelling worse than the (already bearish) markets feared, and that China will back away from spending based stimulus, prompted the sell off.
Whatever you think of the moves, this gives traders a new focus for the trading day - the official yuan fix at 11.15 Australian east coast time. The CNY is the mainland currency which is difficult for foreigners to access. The CNH is settled in Hong Kong, and can be traded by those outside China. This is what happened at the 11.15 am fix:
A higher USD/CNH means a lower yuan. In its statement yesterday, the PBC said it would make a "one-time adjustment" to the level of the currency. Clearly, given today's move, they did not mean a one day adjustment. (All you xenophobes can get back in your caves - ambiguity in statements is a central bank characteristic, not just a PBC phenomenon).
The yuan is tied to the USD. The rise in USD has lifted the yuan with it - by about 14% in trade weighted terms over the last year. It's possible the PBC means to correct this rise - or it it may have other purposes in mind. In some ways the negative market reaction in commodities and global shares is curious - it's not as if the world is populated with China bulls at the moment.
Whatever the PBC's intent, one thing is clear. The 11.15 am fix is another market event for traders to track.