China’s Yuan slides 0.35% to 6.12 against the U.S. Dollar its largest drop in two years will provide more fodder for China crash theorists when in fact it might be China trying to reverse what had been a very strong trend in their currency (CYB, quote) over last few years. 

Image courtesy Fang Guo: http://www.flickr.com/photos/44534236@N00/

China wants to make the renminbi a global currency

Weaker currency makes exports easier.  China (FXI, quote) was beaten with currency manipulator stick many times over the years but truly the move of their currency had been higher. 

With all of the economic softness there they may be willing to pour a little more gasoline on this fire now.

But to be clear, China currency moves are policy decisions not market moving events.  China is possibly easing on the Yuan to pave the way for a widening of the trading band for the currency.  Their ultimate goal here is making the currency have 2-way volatility in trading.  For the last few years the ticket on the Yuan was only one way, up.

In my view investors need to be wary of the headline grabbing news in China and branding it with extreme negativity.  The last few days have been filled with market prognosticators calling for a big plunge in Chinese asset prices.  I'm not sure anything has really changed in terms of the data and the policy approach in 6 months. 

Tagged with:
 

Leave a Reply