A new Asian currency war and a delayed Federal Reserve rate hike; these are the potential market-shaking implications of Beijing's decision to devalue the yuan, strategists told CNBC.
"If they are true to their word today and this is a new regime for the fixed mechanism, we might think about using the word 'floating' associated with the Chinese exchange rate—that's a massive change," noted Richard Yetsenga, head of global markets research at ANZ, referring to Tuesday's announcement by the People's Bank of China to allow the yuan to depreciate as much as 2 percent against the U.S. dollar.
The move took global traders by surprise, with many pointing to weak July trade data, the recent stock market rout's spillover impact on consumption, and aspirations for inclusion into the International Monetary Fund's Special Drawing Rights basket as factors motivating Beijing.
"It's an interesting move which means several things: when the People's Bank of China first started lowering interest rates and reserve requirements, that freed up bank lending, which likely went to stocks. Now this yuan re-engineering will help companies that represent the greater economy, i.e. exporters, not just companies heavily weighted in stock markets," explained Nicholas Teo, market analyst at CMC Markets.