Monday, June 21, 2010

What a renminbi revaluation means for commodities, economy

As I don't pretend to be an expert on matters of currency movements, here are comments from a few more knowledgeable sources on the recent policy shift in the Chinese renminbi (yuan) currency peg.

1. China to put renminbi in a currency basket - Daily Reckoning. "The renminbi is now 'flexible!'" These cats reckon that moves higher in the RMB vs. the dollar are not a foregone conclusion (as many/most suspect).

2. Chinese yuan under 5 by 2020 - Maoxian. Chairman Maoxian sees a long-term controlled appreciation of the Chinese currency that is likely to suit the country's own interests (and timetable).

3. Yuan revaluation impact to be limited - PragCap. Bondsquawk contributes this post on the revaluation, noting that deterioration in the euro is having an effect on "China's plan of allowing considerable appreciation for the yuan".

4. Chinese currency: why Americans should care about yuan revaluation - CSMonitor. Notes on how the exchange rate flexibility announcement could affect Chinese export prices and prices of US exports into China.

On a related theme, Wall Street Journal notes that anticipation of a stronger RMB has "sparked hopes of increased Chinese demand for commodities". As noted in the WSJ piece, some of the basic materials and metals mining stocks are getting a boost today on the revaluation.

While traders are taking the yuan revaluation news as a sign of strength for resources and the global economy, we wonder if investors like Felix Zulauf would agree with this one day verdict.

Zulauf and Marc Faber were both recently quoted in Barron's mid-year Roundtable as saying they expected a downturn for commodity prices, along with a slowdown (or "tightening") in China and the resource economies (Australia & Brazil) tied to its economic prospects.

Will the yuan revaluation turn out to be more of a strategic move which favors China rather than its economic rivals and resource suppliers?