The People’s Bank of China raised its dollar-yuan peg Monday, bringing the Chinese currency to its strongest level against the greenback in two months and bolstering yuan-related exchange traded funds.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB), provides an actively managed approach to gain exposure to the Chinese yuan, jumped as much as 0.6% early Monday. CYB has dipped 2.1% year-to-date.
China’s central bank set its dollar-yuan central parity at 6.1485 per USD, down from the 6.1623 parity level Friday and much lower than Friday’s 6.2502 market close, reports Shen Hong for the Wall Street Journal. The diminished level translates to a stronger yuan, or less yuan needed to convert to the greenback.
The exchange rate currently stands at around 6.2401 Chinese yuan per U.S. dollar.
The PBoC sets the daily reference exchange rate to control yuan’s trading range. The currency is allowed to trade 2% in either direction of the set rate.
Beijing recently posted a robust 7% year-over-year increase in exports over May, a strong turn around from a significant slowdown earlier this year. [Economic Slowdown Threatens to Push China ETF to 2009 Lows]
“There’s likely a linkage between the central bank’s action and the better-than-expected export number. The latter may have given the central bank a bit of confidence,” Suan Teck Kin, an economist at United Overseas Bank, said in the article.
Stronger export numbers, or decreases in imports, help strengthen a domestic currency. Higher exports means increased demand for yuan-denominated goods, whereas lower imports translates to lower Chinese demand for foreign-currency-denominated goods.
Currency traders can also take a look at the Market Vectors Chinese Renminbi ETN (CNY) , an exchange traded note that follows price movements between the yuan and USD. This note is open to credit risk and uses rolling, three-month currency futures contracts to provide exposure to the exchange rate of the Chinese yuan to the U.S. dollar. CNY is down 2.8% year-to-date.
Additionally, the CurrencyShares Chinese Renminbi Trust (FXCH) maintains a deposit account denominated in Chinese renminbi, and interest earned will be used to pay expenses and any left over will be distributed to shareholders. FXCH is down 2.2% year-to-date.
WisdomTree Dreyfus Chinese Yuan Fund
For more information on the yuan currency, visit our Chinese yuan category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.