Originally published at CNBC | March 3, 2014
By letting the yuan drop sharply against the U.S. dollar, Chinese authorities deterred excess inflows in recent days and proved the yuan not a constant one-way bet. But that doesn’t mean China will stop the yuan from strengthening over an extended horizon. Thus, investors must avoid panicking and keep the currency’s positive longer-term outlook in mind.
China knows that over the long term the direction of the yuan‘s value against the U.S. dollar is one way: up. China has repressed the yuan’s rise for two decades, during which it has swelled into the world’s second-largest economy and has managed to remain fast-growing, albeit at a more moderate rate. Pent-up demand for Chinese currency is overwhelming.