China makes the currency change for just a bit

It has finally happened. A change in the link between the yuan and the dollar. It was sooner than expected, but coming on the eve of the G20 meeting certainly has the impact of recurring pressure of being called a currency manipulator.

The market move from 6.83 to 6.80 was not large; however, it has been the greatest move in five years. At approximately .4%, the move will not have enough impact to change the terms of trades or affect profit markets for exporters. Interestingly, the last time the yuan was allowed to appreciate there was little impact on the trade balance The recession had a much bigger impact and the overall direction in the dollar was larger contributor. The yuan will have to move more to stem the rise in inflation seen domestically. The yuan has been said to be anywhere from being at fir value and 50% undervalued.

Tuesday CNY prices were actually higher, so it is difficult to determine what is going. The move in exchange rates for other countries is based on the expectation that this will be a start of a much larger move over time. This should be good news for Asian currencies which compete with China for dollar business. Asian exports to China should also pick up, but again it may not be as large as expected. Global growth rates and domestic policies may have a greater impact on trade balances.