Yuan may fall by another 10% from recent peak; Fed unlikely to raise rates in September: Marc Faber

NEW DELHI: Any devaluation of yuan will not help China perk up its exports meaningfully at a time when demand across the globe is sluggish, Marc Faber, Editor & Publisher, The Gloom, Boom & Doom Report said in an interview with ET Now.

"A 2 per cent devaluation in yuan or even a 10 per cent or a 20 per cent devaluation is not going to help China in terms of exports meaningfully," he said.

The yuan devaluation may give the US Fed a reason to not increase interest rates in September, he said.

When you look at the exports statistics of China, it is not that other countries have taken market share away from China, it is because the demand is sluggish in Europe, in Japan and even in the US. Exports of the US were essentially down in July, he said.

Faber said that yuan, which has had been strong until recently, has turned the trend and that from here onwards, it would easily weaken from the recent peak by about 10 per cent.

China's yuan hit a four-year low on Wednesday, falling for a second day after PBoC devalued it in a move that sparked fears of a global currency war. Spot yuan fell to 6.43 per dollar, its weakest since August 2011.

In a move that came as a surprise to markets, the People's Bank of China (PBoC) weakened the CNY, devaluing the currency by almost 2 per cent against the USD from 6.1162 to 6.2298.

That, however, was not the most significant aspect of the change. In a bid to enhance the "market orientation and benchmark status" of the CNY, the daily fixing around which the currency is allowed to float within a +/- 2 per cent band will now be set at the previous day's inter-bank market closing.

Given the sheer size of China's economy and its trade linkages with major regions, Chinese economy will have a bearing on other emerging economies, and that will put further pressure on other emerging market currencies.

Faber added that the US dollar is relatively higher against emerging market currencies, and also against the Euro. This strength in the US dollar is obviously damaging the US to some extent, he said.

Faber ruled out the US Federal Reserve raising interest rates in September.

"My view is that the central banks around the world would talk to each other and the Federal Reserve talks everyday to the ECB, to the Bank of England, to the Bank of Japan and so forth. The Fed may have very well told the Chinese why don't they devalue their currency somewhat. This will give the Fed an excuse not to increase interest rate in September," he explained.

The bond market in the US has been very strong, it has rallied in the last two weeks, which suggest that the economy is weak not strong.