deereman63
Silver Member
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- Nov 30, 2004
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- deere 2210
The yuan has been revalued against the dollar by 2.1%. What does this mean ?
1) The impact on the trade imbalance with China will not necessarily improve immediately. In fact it may get worse. This is known as the J curve effect. Importers expectations can be that the dollar will move down more and therefore they import more to hedge future dollar devaluations.
2) The Treasury yield curve which was looking to invert may now steepen. The yuan is now going to be pegged to a basket of currencies so it would be logical for them to diversify their currency holdings into other countries’s securities.
3) The revaluation was minimal, and the market was taken by surprise. The Malaysian ringgit followed immediately. The Yen has also appreciated against the dollar. This is not the end of the story.
4) I expect the yen to take up much of the strain over the next couple of months. Watch very carefully if the following charts points get broken 107 and 101.75; especially the latter. The Japanese will not like a too rapid an appreciation of the yen so you will hear a lot of jawboning about intervention.
5) The euro may also appreciate. we dont know yet the mix of the currency basket that the yuan will be pegged to. The proportion of the euro will be crucial but with a slow economy there the interest differential trade should work in the dollar’s favor.
1) The impact on the trade imbalance with China will not necessarily improve immediately. In fact it may get worse. This is known as the J curve effect. Importers expectations can be that the dollar will move down more and therefore they import more to hedge future dollar devaluations.
2) The Treasury yield curve which was looking to invert may now steepen. The yuan is now going to be pegged to a basket of currencies so it would be logical for them to diversify their currency holdings into other countries’s securities.
3) The revaluation was minimal, and the market was taken by surprise. The Malaysian ringgit followed immediately. The Yen has also appreciated against the dollar. This is not the end of the story.
4) I expect the yen to take up much of the strain over the next couple of months. Watch very carefully if the following charts points get broken 107 and 101.75; especially the latter. The Japanese will not like a too rapid an appreciation of the yen so you will hear a lot of jawboning about intervention.
5) The euro may also appreciate. we dont know yet the mix of the currency basket that the yuan will be pegged to. The proportion of the euro will be crucial but with a slow economy there the interest differential trade should work in the dollar’s favor.
