A bit of buzz out there about a revaluation of the yuan. Not many are talking about it yet, but it could happen this weekend.
A central bank advisor reportedly says a one-off revision of the Chinese currency’s official exchange rate could be possible.
Granted, this is a news portal in Russia talking about an unnamed source, so it needs to be taken with a grain of salt.
But if Beijing wants to let the yuan appreciate to its natural level, the Easter holiday - when Western markets are slow to react - would be a perfect time for it.
Commodity markets would explode if the yuan’s buying power increased, so now that this is a factor in the markets, we should expect it to be commodity positive.
Obviously, this would also be an immediate boost for funds like CYB, not to mention a chance for sophisticated traders to set up arbitrage plays between the yuan funds and the currency itself.
Talk is heating up from Washington and the front page of the WSJ about officially making the yuan a global reserve currency. This would be applauded by many, but you need a whole series of actions including normal floatation in order to pull this off.
And naturally, China might move closer to an actual rate hike, not just a banking reserve ratio increase. A stronger yuan would help to fight the pain of rising commodity prices, but the risk of inflation is growing.
Local policy makers believe inflation to be persistent, and as much as traders want to believe we have seen a near-term top of the inflation cycle, we might not see prices slow much in the second half of the year.