Five Ways to Trade Chinese Yuan and US Dollar Divergence

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The Chinese yuan is in tears.

The currency hit a three-year high in offshore markets on Thursday, as the US dollar index hovered near its 12-month lows, accentuating a persistent divergence. The Chinese yuan has outperformed the dollar since mid-2020.

Two traders on Thursday reported several ways to play in the changing currency market on CNBC’s “Trading Nation”.

1. Emerging market bonds

The widely expected dollar weakness gives investors the opportunity to put their money to work overseas, said John Petrides, portfolio manager at Tocqueville Asset Management.

He suggested playing the dollar-yuan division via the VanEck Vectors JP Morgan EM Local Currency Bond ETF (EMLC), a basket of emerging market bonds denominated in local currencies.

“You are approaching a 5% return and you are investing in emerging market bonds because the world is less afraid of credit risk today than we were a year ago,” he said. -he declares. “About 10% of this ETF is China-oriented, so you get into this trade … and you’re getting some return in what was a stubbornly low-performing market.”

2. Copper

With the yuan now above a multi-year downtrend against the dollar, China can use the strength of its currency to its advantage, said Bill Baruch, founder and chairman of Blue Line Capital.

“Their currency will travel further for them and allow them to buy more raw materials,” he said in the same interview on Thursday.

Baruch was particularly attached to copper – he has calls on the underlying product – and suggested playing it through mining company Freeport-McMoRan.

“You have a nice little uptrend that’s getting stuck,” he said. I think it could go up. “

3. Gold miners

Gold miners also look good on a technical basis, Baruch said, highlighting a flag motif in the VanEck Vectors Gold Miners ETF (GDX) that chart analysts often interpret as a sign of bullishness.

4. Energy

Baruch also valued energy stocks as a bet on the strength of the yuan.

He was invested in Chevron, Marathon Petroleum, Pioneer Natural Resources and various middleman companies for the past year, he wrote in an email to CNBC.

“China’s energy demand is very well known,” he said in Thursday’s interview. “I don’t think it’s going anywhere, although there are times when it mellows a bit.”

5. Crude oil

Baruch sees Crude oil prices have soared, especially with Goldman Sachs calling for $ 80 a barrel. Prices edged up to just under $ 67 on Thursday.

“I think crude oil is about to burst,” he said. “We are at the end of a very seasonal bullish period here, so there is a rise in commodities in general.”

Disclosure: John Petrides and certain clients of Tocqueville Asset Management own shares in EMLC.

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