Morgan Stanley is 80% certain that the yuan revaluation is going to happen.
In the short term, the currency is destined for a 2-3% appreciation against the dollar. After that, Morgan Stanley also predicts a further gradual appreciation throughout the rest of 2010, which will result is a year net appreciation of 4-5% against the U.S. dollar.
Big winners from this appreciation exist beyond U.S. exporters:
- Currencies that have followed similar paths to the yuan’s are now likely to also appreciate against the dollar, which will make U.S. exporters an even bigger winner than expected.
- Also, countries with currencies closely tied to commodities, such as Brazil and Russia, are likely to see price benefits from the move.
- If the country is a big exporter to China, like Brazil and South Africa, they are likely to see currency gains as a result of the revaluation.
- Mexico and its currency is likely to see a boost from China’s revaluation as well, because it will make its goods more competitive in the American market and its currency stronger as a result.
Morgan Stanley sees the possibility of three further scenarios at much lower levels:
- A 10% chance of a one time revaluation of 10 to 15% against the U.S. dollar
- A 10% chance that nothing happens, and China holds its currency steady
- The highly unlikely option of China moving to float its currency
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