China has been quietly joining the rest of the world in reducing interest rates and depreciating their currency. For the past couple of years, growth in China has been slowing and their stock markets have suffered as a result.
This year, the markets have been strong because of the orchestrated currency weakness and lower rates.
This sounds eerily similar to Japan and Europe. But isn’t the Chinese yuan regulated by the government in a currency band relative to the dollar?
Yes it is, however, the band can be widened and moved to where the government deems to be optimal. The yuan depreciated 2.4% in 2014 and another 0.5% so far this year.
The yuan is something to monitor closely since Asian countries will not want to be at a disadvantage to China with respects to their exports. With all of Japan’s ills, a depreciating Chinese yuan would be a further impetus to a weakening Japanese yen.
This article was written by Treesdale Partners, portfolio manager of the AdvisorShares Gartman Gold/Euro ETF (GEUR) and AdvisorShares Gartman Gold/Yen ETF (GYEN).