Chinese Yuan ETF: Why Its Strength May Be a Good Thing | ETF Trends

Usually relying on a weak currency to improve growth, China is thinking about reversing its stance and strengthening its domestic currency. If China goes through with it, currency traders may soon see an appreciating yuan and currency-related exchange traded fund (ETF).

The Chinese government may let the Chinese yuan appreciate against other currencies, which means better exports and better growth for everyone – except China, reports Jeff Cox for CNBC. (Reasons to watch China).

European and U.S. manufacturers would stand to gain the most since their products would be cheaper in China. Revenue would also get that extra kick when exchanged back to domestic currencies. The U.S. trade deficit with China would also diminish, giving the U.S. economy another boost.

Of course, there are drawbacks to a stronger yuan. Higher prices on Chinese goods could push up inflation in the United States and force the Fed to raise interest rates faster than desired. Investors also see that the Chinese monetary policy is a linchpin in the prevention of a trip back to global recession.

Investors can take advantage of the yuan with the WisdomTree Dreyfus Chinese Yuan Fund ETF (NYSEArca: CYB). CYB tries to reflect money market moves in China and changes in the yuan against the dollar. China may soon need to begin a tighter monetary policy to control inflation. Any Fed moves to raise U.S. interest rates will likely be mirrored by China’s boost to the yuan. (How to play China’s currency)

For more information on global currencies, visit our currency category. Or, take a look at our ETF Trends’ guide to currency ETFs.

  • WisdomTree Dreyfus Chinese Yuan Fund ETF (NYSEArca: CYB): up 1.8% year-to-date


Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.