Get a Clear View on a Freed Yuan

Financial markets are subject to optical illusions: Stare at anything long enough, and its appearance changes. And the results of that are not always the ones for which we hoped.

Staring at the Chinese yuan (CNY) has yielded just these distortions for many. However, the right lenses, ones designed to view currency impacts on specific stock sectors, can refine that view to the point where a well-reasoned trade emerges.

Friday's speculation that China will widen its currency's band is the kind of optical illusion that is so problematic. Worse, a large number of manufacturers and the politicians who love them have become convinced by all their looking at the current account deficit that if only the CNY, which has been pegged near 8.277 to the dollar, were allowed to trade freely, it would zoom higher. ...