Last week’s meeting between Chinese President Hu Jintao and President Obama may have left some things up in the air, but the question of the yuan is not one of them. China has indicated that it’s ready to let the currency appreciate, so get those exchange traded funds (ETFs) ready.
The Chinese currency has been appreciating about 0.5% a month against the dollar since mid-June, when Beijing said it would put exchange-rate flexibility in place. The U.S. Treasury wants to see the currency to appreciate twice as fast as that, though, explain Ian Tally, Bob Davis, and Jason Dean for The Wall Street Journal.
WisdomTree Dreyfus Chinese Yuan (NYSEArca: CYB) and Market Vectors Chinese Renminbi/USD ETN (NYSEArca: CNY) could build on what have so far has been a lackluster start to the year; both funds are down slightly. [China ETFs: Economic Indicators Are Looking Good.]
It’s not a given that China will actually let its currency appreciate even faster than it has, but U.S. officials noted three changes in the tone on currency talks:
- First, China dropped previous references to “maintaining basic stability at an equilibrium rate,” one official said.
- Second, U.S. officials say, China noted in talks the relationship between the exchange rate and its broader goal of transforming its economic development model. Maybe a shift away from an export driven economy is the motivation.
- Third, the language on currency in a U.S.-China communiqué says that China is committed to exchange-rate flexibility “to promote the transformation of its economic development model.” However, it’s unclear whether that represents a departure.
If China does, in fact, let its currency loose, then yuan ETFs could benefit. Both funds are right around their long-term trend lines, so it might be best to wait and see if China actually follows through on the talk.
Tisha Guerrero 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.