Pressure to float yuan returns to bite the US

LONDON - Now that China has responded to United States pressure to revalue its currency, there may be some unintended winners: Canadian tourists and Australian copper miners.

Investors say the big beneficiaries may include mining companies from Melbourne-based BHP Billiton to Rio Tinto of London and currencies of commodity-rich nations, such as Australia and Canada.

A stronger yuan makes US dollar-priced copper and oil cheaper and boosts buying power for Chinese companies such as Cnooc, bidding for US oil producer Unocal Corp.

The US Administration pushed for a revaluation to help American exporters. But it may backfire by prompting China to cut investment in US Treasuries, raising interest rates and curbing spending, says Diana Choyleva, senior economist at Lombard St Research in London.

"Beware what you wish for," she says.

"The Washington establishment will find that getting its way with China on the yuan exchange rate forces it to cut US domestic demand."

China abandoned a decade-old peg of the yuan to the US dollar, previously fixed at a rate of 8.3 and will link the yuan to a group of currencies of major trading partners, including Europe and Japan.

China may shift investments to Government bonds in Europe and Japan from the US contributing to higher US interest rates, says Jane Coffey, head of equities at Royal London Asset Management.

The most immediate beneficiaries of the currency revaluation are commodities producers, says John Segner, senior portfolio manager at AIM Energy Fund.

China, the fastest-growing major economy, is the world's biggest buyer of copper and steel and the No 2 consumer of oil after the US. Now, China will be able to afford more oil and other raw materials because the goods are priced in US dollars.

The revaluation reinforces the attractiveness of Canadian oil sands, Dean Orrico, of Toronto-based Middlefield Capital, says.

"The Chinese have realised, and maybe sooner than the US, that we are in an energy crisis," he says. "They have been trolling around the oil sands for a long time and that's going to continue to be the case."

- BLOOMBERG