RE: when are financials out?....goldmembersGoldmembers you wrote:
"The recent revaluation of the Chinese yuan, although a modest 2% I believe, produced a shockwave throughout the currency markets and our Canadian dollar was hit very hard dropping more than a cent and a half in the two days that followed. I am not sure of the dynamics here and would love to hear some comments on this reaction. I always felt that when they (Chinese) did finally let their currency float a bit more it would appreciate and thereby make it more affordible for them to purchase raw materials. This would act to sustain pricing of late, in my humble opinion. Of course, on the other side of the coin, their exports would be more costly for us to purchase. Why did the Canadian dollar in particular take it so hard following this revaluation?"
I certainly have very limited currency exchange expertise, but am seriously interested in the potential(and difficult to assess) impact of currency exchange on various investments. I table the following brief thoughts in response to your question:
1) First a knee jerk reaction...if China has started to unpeg their currency from the US dollar, then the 2% adjustment may become much bigger during the next 12 months or more and products from China could become significantly more expensive....potentially leading to lower overall economic activity all around and direct impact on Canada's large resource-based trading.
2) Stronger China currency could generate difficulties for less solid companies within China and generate major difficulties for some aspects of the China Banking system with bad debts etc......
3)Potentially more aggressive spending by China abroad with their stronger currency(more Falconbridge and Oil company Take-over initiatives).....even a view that there could be lowering of internal business investment in China and a repatriation of money out of China to the parent companies....... combining to lower China growth and drop commodity price.
4) There seems to be also a school of thought that under some circumstances includes a cycle swing to a weakened Chinese currency by amplified version of the current approximate 2%(would that be an eye opener consequence !!)
5)Details on the mix of currrancies in the basket process proposed by the Chinese and the weight proportions within the mix is unclear and
the marketplace seems less than confident on what to expect in terms of stability of the "new" approach.
A market place required different views of value...a trade is frequently(though not always) the coming together of two diametrically opposed views....one anxious to sell and another happy to buy at a particular price at a specific moment. My personal view is that the whole combination of trade imbalances, national budget imbalances, major wealth/health/quality of life imbalances, interest rates, energy requirements/supply limits, security fears and costs, technology innovations, etc, etc.... make Volatility in future economic activity pretty certain.....spikes, trend swings, hightened uncertainties. We will each form our overall expectations, but openness to learning and adaptability will serve us well IMHO,
Peace,
Good Decision-making to All,
ElJ