The arrival of reciprocal tariffs also heavily impacted the economic outlook of China at a time when the Asian powerhouse was mounting a recovery from a difficult post-pandemic period characterized by slow growth, low interest rates, and a widespread decline in foreign investment.
Despite this, the renminbi mounted its strongest annual gain since 2020 as questions once again emerged over whether the Chinese government is attempting to position its currency as a favorable alternative to the dollar as the global reserve currency.
Notably, state-aligned Chinese banks have reduced their dollar lending to other emerging-market economies, favoring the lower lending costs of the yuan instead.
However, Peter Kinsella, global head of forex strategy at UBP, noted in July that the People’s Bank of China is unlikely to seek long-term appreciation for the renminbi due to lower domestic inflation rates. This means that while the dollar is likely to slip further due to upcoming Fed rate cuts, a sustained slide in USD/CNY may be more subdued.
What Could USD Trends Mean for Investors?
For investors seeking out opportunities amid the greenback’s weakening outlook, the best value could be found in opting for commodities like gold and silver, which are likely to draw more investors seeking a relatively low-risk alternative to treasuries in low interest rate environments.
Because most global commodities are priced in dollars, shifting currency values could help to make raw materials cheaper for foreign buyers, potentially supporting demand and driving prices higher.
However, risks to investing in metals like gold or commodities like coffee could also come in the form of trade tariffs or a flare-up of trade wars involving the US.
Adapting to a Weaker Dollar
With at least one Federal Reserve interest rate cut appearing likely, investors may have to adapt faster to a weaker dollar environment, which may carry long-term ramifications for other markets.
Adopting a proactive approach by monitoring news that could impact the currency against its peers, such as monetary policy and outlooks on trade, could be advantageous in a weaker dollar environment.
Adapting faster to change can help to bypass the strain of a lower dollar while helping investors to take advantage of the opportunities that a weak dollar can bring elsewhere, particularly when it comes to commodity trading.
