Monday, May 24, 2010

Yuan Appreciation: NINJA Style

The yuan over the past coupe of weeks has been doing what everyone says it should be doing. Appreciating. But it's doing it in Ninja like fashion. Super fast and unnoticeable to the public eye.

The Chinese yuan is currently pegged to the US dollar. And the US dollar is the one hundred pound gorilla in the currency markets that has finally awaken after a year of sleep.

The Euro is rioting down like Greek protesters. The Aussie dollar is going down under. The Canadian dollar momentum is going the same way as the Montreal Canadians (it was fun while it lasted CAD and HABS :) And the South Korean Won is starting to hide from the North Koreans.

Last year everyone was hating on the US dollar, now everyone is in love with it again. Such a fickle market. That is why you should never stay married to any one trade.

As the US dollar goes UP, so does the Yuan (as long as the peg holds). So, lets look at some of the Ninja Yuan appreciation in the past couple of weeks.

Euro Down over 16.5% since December 2009.

Aussie dollar Down Under 12.5% since April

Korean Won down almost 14% since April.

Those are massive moves in currency land in just a couple of weeks.

China is involved with a lot of trade with those countries. If China believes that a small appreciation in the Yuan will hurt exports, then this must be a major kick in the pants.

Can you still say the Yuan is desperately undervalued. Or, is it starting to look overvalued? The Chinese may continue to keep the peg, but they have to be careful if the US dollar continues to surge against all currencies. If the US dollar continues to fly in the coming year, the Yuan will rise as well and the Chinese government will not be too happy with that. China posted it's first trade deficit in March, but further deficits will inevitably come with such a dramatic short term rise in their currency.

Therefore, will a depreciation of the Yuan be in the works instead?

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