Yuan move not bullish for commodities

China’s unexpected decision to allow more flexibility in the yuan is too small to have an impact on commodity prices.

While it makes dollar-denominated commodities marginally cheaper for Chinese customers, and could theoretically lift their consumption, in practice the rise in the exchange rate is too small to make much difference and the government’s priority is to rein in demand to prevent the domestic economy overheating.

The timing caught the markets off-guard (which is almost certainly what China’s monetary authorities intended). But the direction of change came as no surprise to anyone. Investors have been anticipating a stronger yuan for more than a year.