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The Chinese Yuan Is Leading Foreign Exchange Drivers (Continued from Prior Part) Business confidence and conditions drop back from previous highs
According to the National Australian Bank (NAB), business confidence—which comes out monthly—stooped from +8 to +4. Business conditions also fell back by 4 points to +6. Business confidence and conditions are leading indicators of economic health, with a rating above 0 indicating improving conditions while below 0 points to a depressing outlook.
Australian dollar plunges on double blow
As a commodity currency, the Australian currency, as well as macro-indicators, reacts vigorously to growth and depression in the Chinese manufacturing sector. Recent sluggishness in Chinese growth led to a fall in business confidence and conditions. Also, the Australian dollar lost considerably against the US dollar as it registered a fall of 1.46% on August 11, 2015. Sentiment was buoyed by the the People’s Bank of China’s (PBOC) 1.86% depreciation of the Chinese yuan. The move raised concerns about growth in China’s export sector.
Impact on the market
The iShares MSCI Australia ETF Fund (EWA) lost 3.44% on the back of disappointing news by the NAB and the yuan’s depreciation. The iShares MSCI EAFE ETF Fund (EFA) also plunged by 1.53%.
Let’s look at Australian American depository receipts (ADRs) trading in US markets. BHP Billiton (BHP) fell 4.78%. In the mining sector, British-Australian multinational Rio Tinto Group (RIO) fell 3.68%.
Another stock, trading in the US markets that are headquartered in the Canadian commodity-based currency economy, Valeant Pharmaceuticals (VRX), fell by 0.47%.
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Vale Inco is a nickel and copper producing company based in Brazil. Vale Inco produces nickel, copper, gold, palladium and platinum in Canada, and holds various exploration projects in Australia, in Brazil, in Canada, in Indonesia, in New Caledonia, in Peru and in Turkey. Its main assets in production are MCCREEDY WEST MINE and VICTORIA - INCO in Canada and its main exploration properties are EAGLE CREEK, MEL PROJECT, B20, SHEBANDOWAN - BAND-ORE and GARSON MINE in Canada and GOONGARRIE SOUTH - GOONGARRIE, HIGHWAY - GOONGARRIE, SCOTIA - GOONGARRIE, BIG FOUR HERON - GOONGARRIE, GOONGARRIE HILL - GOONGARRIE, TOBY PROPERTY and BORDER DOWNS in Australia. |