How China's Devaluation Is Impacting Markets

This week, the People's Bank of China's move to devalue the Chinese yuan roiled share markets and gave investors reason to question whether or not the nation's policy makers were truly working to liberalize Beijing's markets. As the dust settled following the decision, it appeared that the yuan's rapid decline will have far reaching consequences in many corners of the global marketplace.

Metals

Commodity markets depend heavily on China as the nation represents one of the world's largest producers and consumers.

Industrial metals like copper and iron ore were impacted negatively as most expect that China's imports will drop alongside a weaker currency. However, gold profited from the yuan's slide. Investors around the world began to turn to the precious metal as a safe haven as markets went haywire and Chinese investors likely began buying gold incase its price in yuan continues to rise.

Related Link: Are Yuan Holders Turning To Bitcoin?

Oil

Oil markets took a beating with the yuan on the decline as the devaluation suggests a larger economic issue in China. As one of the world's largest oil consumers, many worry that China's economic slowdown will add to the already overwhelming global supply glut.

Meanwhile, producers have continued boosting their output despite concerns about a lack of demand. For that reason, crude prices have been under a lot of pressure recently and aren't seen making a comeback in the near-term.

U.S. Interest Rates

China's devaluation has been widely criticized by U.S. officials and some industry leaders who say the nation's currency manipulation makes for unfair trade conditions. Chinese manufactures are likely to benefit from a lower yuan as the nation's goods will become less expensive for trade partners and thus more attractive than similar offerings from different countries.

Despite that, the Federal Reserve is expected to stay the course and raise interest rates in the coming month. Such a move would send the dollar higher and create an even larger gap between the two currencies, but most expect that the bank will remain focused on the strength of the U.S. economy and whether or not the labor market can withstand a rate hike.