The currency exchange traded funds that track the Chinese yuan have regained their footing as the Chinese central bank eased the country’s currency peg against the U.S. dollar.
WisdomTree Dreyfus Chinese Yuan Fund (NYSEArca: CYB) and Market Vectors-Chinese Renminbi/USD ETN (NYSEArca: CNY) are the currency ETFs in this category.
The People’s Bank of China set the yuan’s official guidepost at a new high of 6.3735 on Monday, The Wall Street Journal reported. Observers note that the move suggests that the central bank will continue in its efforts to gradually allow the yuan to appreciate higher.
Dariusz Kowalczyk, Hong Kong-based senior economist at Credit Agricole CIB, believes the move is “a signal to the market that China will keep letting the yuan appreciate despite the risk aversion in the rest of the world.”
“As China continues to focus on fighting inflation, a stronger yuan is a quick way to bring down inflationary pressures,” Kowalczyk added in the WSJ report.
While a stronger Chinese yuan lowers export growth, the appreciation helps fight domestic inflation, increase domestic consumption and helps augment the yuan’s appeal as a global currency.