Why Chinese currency strength is a trend to watch

Jamie McGeever at Reuters is out with a good column on the conundrum for China as it looks to stimulate the economy. He highlights that the moves could spark a rally in the yuan and that USD/CNY could also fall as the US stimulates.

He cites Stephen Jen — who is a great FX analyst — about the possibility of yuan strength.

Stephen Jen, co-founder of
hedge fund Eurizon SLJ and long-time China watcher, thinks Beijing is
stuck between a rock and a hard place. As the Fed’s easing cycle rolls
on, the dollar’s floor against the yuan will almost certainly drop.

“I
continue to believe USD/CNY is heading lower, possibly by 10% in the
coming year. Almost everyone is the wrong way around. Positioning
adjustment will make this prospective decline non-linear,” he wrote on
Wednesday.

I tend to think the impact of the yen is overstated on exports and that China has plenty of levers to pull on the currency, particularly if they want it to weaken, but the column is a good read.

Also note that Goldman Sachs is on the other side of Jen’s trade, saying there will be no rush to sell dollars and buy yuan in China.

This article was written by Adam Button at www.forexlive.com.