Monday, June 21, 2010

Yuan's Appreciation

Yuan Climbs Most in 20 Months After China Signals End to Peg:

The Yuan climbed the most in 20 months against the dollar and forwards jumped after China’s central bank relaxed a two-year peg before a Group of 20 summit this week.

China’s central bank announced on June 19 that the yuan’s “flexibility” would increase, officials said the currency’s value was not a suitable item for discussion at the G-20 meeting in Toronto.

China’s signal of an end to the yuan’s fixed rate to the dollar may accelerate a shift toward domestic demand as the prime driver of growth as President Hu Jintao seeks to strengthen household incomes.

Chinese President Hu Jintao may have succeeded in removing the yuan’s valuation from debate at this week’s Group of 20 leaders’ summit, economists and political analysts say. How much time he’s bought depends on how flexible the currency will become.


Major economies among the world push China to appreciate the value of RMB, especially against USD and Euros

US Congress has the vote of the Action whether put China as the exchange rate control nation, which directly pressures Chinese government for a high RMB to USD rate

Bearish Evidence:

Chinese economy faces serious inflation problem inside the country, which becomes another factor that influence. Since people supposed to get more money as currency inflated, if RMB appreciates a lot at the same time, RMB will become even less valuable

One of the major support of China's GDP growth is the exporting, there is a big contribution of exporting as a percentage of the employment and trade surplus. If RMB appreciates, the exporting will definitely got hurt and harm the country's stability and economics.

In my humble opinion, the Bullish picture has a more valid argument because of the current economic situation inside China and the outside circumstances of the other major economies in the world. I expect Yuan appreciates for 3% within one year.

Liz. L


Analyze Capital LLC

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