my knowledge of currency exchange is fading so i'm uncertain what to expect on monday morning. china relaxed restriction on its currency to float more with market indicating that it is confident with its growth. action of chinese is sign of confidence and market should respond up BUT i've forgotten how that might reflect dollar; obviously, if dollar strengthens, that usually has negative consequences. ANYONE KNOW the technicals of effect on dollar strength?
The ***near-term*** result of China raising their currency will be:
1- China's cost of raw-materials imports such as copper, energy and food products will decline (read: a decline in their inflation index.) Inflation has been their number one problem. An over-heating of housing and commercial office prices has shut out the vast majority of the public and in addition created a bubble for chinese banks that provides loans at bubble-prices. Poor chinese could not afford to eat well since China imports huge quantities of food products. This was starting to cause unrest within China. Food prices could decline.
2- Since the USA has turned over manufacturing to foreign countries such as China and Mexico over many decades, it's not feasible to replace the USA manufacturing very quickly, especially with the banking system still under stress. The banking system must become the lender of those who want to expand manufacturing here. US Multi-national companies keep a large portion of there money overseas so even they need to borrow to expand in the USA. BOTTOM LINE is that higher import prices of finished goods, especially from China will tend to INCREASE INFLATION in the USA for years going forward. The FOMC does not like inflation and that will end the QE endeavor, and the TWIST endeavor will become more expensive and therefore end. This will cause Mortgage interest rates to climb. Not good for a housing recovery.
3- Most important, China's yuan is fast becoming the favored currency over the USD (US dollar). The BRICS countries and Taiwan are making that shift. ( http://rt.com/business/news/china-us-dollar-currency-129/ ). Other countries will follow, especially Asian countries. China's move will accelerate this shift. Eventually the USD will PLUNGE if foreigners stop buying US treasuries, as it did in Germany (1928 to 1932). This could herald a super inflation as the USA prints money to compensate.
your #2 argument may not have merit. i believe the U.S. contends that rmb valuation determined by free market that 1) u.s. exports become more competitive which 2) creates jobs. therefore, although inflation may result, it's not because of china's products being more expensive but rather because of the resulting growth in U.S. economy. your argument #3: if a country is experiencing inflation, do they really print more money?
Yuan should strengthen with dollar weaker vs yuan.
That would make Chinese goods more expensive to US consumer and our goods cheaper to Chinese consumer.
China has purposely kept its currency cheap in order to sell overseas and now they are trying to develop internal consumer market for Chinese goods.
A good omen for us but Walmart suffers ... higher price for all that crap they sell ... maybe US manuf. can compete ... shipping cost and complications abound when importing. Obama should take action and not just in solar.... US LNG will be big...