Article source: CMDGroup
Who can doubt that there’s an exchange-rate war underway? Almost all the world’s currencies have fallen to one degree or another versus the U.S. ‘greenback’. One of the few hold-outs, until recently, was China. Now, even Beijing has stepped back from parity.
The cries of alarm, though, have been overblown. If the yuan’s reduction doesn’t stray significantly from -2%, it won’t play a huge role in promoting China’s exports. To site an example from the retail sector, nobody ever holds a sale announcing that prices have been ‘slashed’ by 2%. If the slide continues and reaches -10%, that’ll be another story.
Since most commodities are priced in U.S. dollars, they will become slightly more expensive for Chinese buyers. This is another knock against owning the shares of companies engaged in supplying raw materials at this time. A deeper concern, though is what this says about the state of China’s economy. An output growth rate that was once 10% to 12% has slowed to a range of 6% to 7%. And that’s if China’s ‘official’ statistics are to be believed.
