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NEW YORK (CNN/Money) -
Was the timing of China's decision to revalue the yuan an attempt to manipulate the politics of China/U.S. relations?
I think the timing couldn't be clearer.
In general there's mounting pressure against China in Washington, as politicians get fed up and start smacking tariffs on Chinese apparel imports. Unocal's board voted to take Chevron's lower bid over CNOOC's because they're afraid the U.S. government would block the bid from the Chinese oil giant.
China has taken a long-awaited step. But let's face it, the currency ain't free-floating yet, it's only being revalued (moved higher) by about two percent, and it's going to have very little impact on the trade deficit. But if it's being signaled behind the scenes as the first of many steps, it could be the latest move of the pawns on the game board to see whose king is checkmated: Chevron's or CNOOC's.
Dave Gilmore of FX Analytics says if the Treasury "embraces" the move, that will imply that privately China has promised to follow this baby step with bigger ones, achieving a 10 percent revaluation of the yuan over the next year to year and a half.
If Treasury is less than enthusiastic, Gilmore said that will indicate that China has not given behind-the-scenes promises of more to come.
A rising Chinese yuan may help U.S. exporters but it may not be so hot for owners of U.S. Treasury bonds.
The Chinese buy bonds as they accumulate dollars by selling the United States so much stuff. So if a higher-valued yuan actually does end up trimming China's exports to the United States, that will mean that China won't accumulate as many dollars and perhaps won't need to buy as many bonds.
All else equal: lower bond prices, higher bond yields.
Gilmore says he thinks it's too early to expect a marked decline in dollar accumulation in China and hence demand for U.S. bonds.
"But the implication is as China moves more, the need to accumulate dollars will decline," he said. So, Gilmore said, the news is bearish for the Treasury market, "albeit it not the conundrum slayer a floating yuan" would be.
Analysis: China revalues yuan
Time to invest in Chinese companies?
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-- Kathleen Hays is economics correspondent for CNN and contributes to Lou Dobbs Tonight. You can read more of her columns here.
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