Very big deal and a not so subtle move toward internationalization of the yuan, which is a shot across the bow at the FRN.
In a move that provides a glimpse of the future of US dollar and gold, China has allowed its currency to be traded for the first time in the United States. This is a bullish sign for gold investors. It is an important step in the country’s plan to make the renminbi an international currency. The explicit move is an endorsement by Beijing since the state-controlled Bank of China Ltd is at the forefront of this development.
Although a floating currency allows price moves in both directions, it is general consensus that the renminbi will strengthen against the US dollar due to trade imbalances between the two countries. The impact on commodity markets, including gold, will depend on the extent and speed to which China allows its currency to rise.
The impact of a free floating yuan will affect commodities in three angles: economic strength and prospects of global recovery, direct impact on trade of commodities to and fro China, and the broader knock-on effect on commodity demand.