China Trumps The Dollar

China's currency had it's best week vs the dollar

Image source: NattapolStudiO, Serjio74 - Shutterstock

What's going on?

China’s currency, the yuan, had its best week against the US dollar in more than a decade, perhaps helped by its economic head honcho getting involved in trying to end the long-standing trade war.

What does this mean?

The yuan’s growing strength coincided with a thawing of frosty relations between China and the US, which have tussled in a trade dispute for months. Progress made during negotiations between the two last week led some optimistic investors to believe a resolution is likely.

Investors’ mood towards China was also helped by the US Federal Reserve’s intention to apply the brakes on interest rate rises – at least until March. Higher interest rates attract investors, which increases the demand for and value of a currency. Slower rate hikes, therefore, attracted fewer investors – with some buying up the yuan instead.

Why should I care?

For markets: China’s an umbrella for the European storm.

The yuan’s rebound perhaps provided some welcome respite for investors. With a probable recession in Germany and Italy, plus a spanner in the works of both the French and British manufacturing sectors, some investors may have sold off euros and instead turned to China. Despite economic woes of its own, China’s perhaps a more attractive investment than in recent months. A tariff-free resolution would boost the profits and stock prices of Chinese companies (and of firms in other countries which do business with them), thereby boosting China’s economy overall (tweet this).

The bigger picture: Hey, big spender.

Although China’s economic growth is slowing, its wealthiest citizens are spending up a storm (just not on smartphones). Shares of the world’s second-largest luxury goods company, Richemont, were good lookin’, so refined. They rose on Friday after the company reported its quarterly sales in China continued growing. Some analysts worried the economic slowdown would stifle demand for luxury watches and other big-ticket items, but that doesn’t seem to be the case – for now.

Originally posted as part of the Finimize daily email.

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