Friday, December 5, 2008

Has China decided to allow the renminbi to depreciate against the dollar?

From Neil Mellor at the Bank of New York.

"For the first time since China abandoned its peg to the USD, it appears that the authorities there are now targeting a weaker CNY."

"Perhaps the clearest signal of the apparent change of policy, however, came from the currency market itself. Having fallen steadily from July 2005 onwards, USD/CNY’s downtrend came to an abrupt halt on July 16th of this year as the authorities stopped moving the daily band lower. The NDF market duly took this apparent shift in stance to heart with the one-year NDF rallying aggressively from mid-July onwards. Between July 18th and the end of last month the market moved from predicting a 6.1% y/y decline to calling for a 3% y/y rally.

Since the start of this week, however, there appears to have been a further palpable shift in policy. Following a clear shift in the wording in the latest quarterly monetary policy report and a speech over the weekend by President Hu Jintao (warning that China’s competitiveness and trade strength were being threatened), the PBOC on Monday set the central parity rate of USD/CNY aggressively higher. After four and a half months of sideward trading, the market reacted strongly to this apparent change in attitude by pushing USD/CNY to the top end of its band. The reaction in the NDF market was even more dramatic with the one-year NDF jumping 3.16% (its largest ever one day move in either direction). This upward pressure has continued over the last two days to leave the NDF now forecasting a 6% y/y rise (spurred on today by comments from Vice premier Wang Qishan that China will do all it can to stabilise exports)."

Interesting, July 2005 is exactly when housing stocks peaked. The reversal in the renmimbi trend could be very important.


googleheim said...

googleheim said...
An important effect of a strong dollar that the Norman explains should spike ever so stronger ( although the fed swaps are preventing an all out apex of the USD ) is that during the global down turn it would make it harder for foreign entities to gobble up US companies.

e.g. : French electricity company outbiding Warren Buffett for the nuclear plant on the sale blocks. When Argentina got privatized in the 90's, many utilities were sold off to European subsized if NOT nationalized companies. So what was the point of privatization ? so some other nation's nationalized company could buy it ?

completely contradictory

We don't need French control of 1 single nuclear reactor here.

Are the French trying to prohibit Warren Buffett's object model of responsible free marketism from showing if not revealing that French subsized if not nationalized nuclear power is inefficient ?

Evidently the dollar is indeed not strong enough, and what are we to expect from the Japanese building more Toyota plants in non-union south ?

Historically Japanese rich keep their money outside country so actually they probably got pinched by the YEN strengthening against the U$ Dollar

However, as a sovereign country can they not print money without debt obligations to spend their way out of doldrums - and that spending is in the form of investment in overseas places like the USA ?

The YEN is on top of the heap right now.

December 3, 2008 10:38 PM

googleheim said...
What are the chances that Paulson's and Bernanke's loans to European banks are helping the French finance their Nuclear Electricity company to OUTBID Warren Buffett's bid for the nuclear power plant for sale here in the USA ?

This is similar to IMF in the 1990's : loan money to very corrupt Korea state so they can build semiconductor factories that make memory below market prices which directly affected AMD and others in the USA.

We ( via IMF ) subsidized Korean companies to undercut our own companies while Korean officials were bankrupting and skimming their way to the bailout !

Are we doing the same with the current world-wide bailouts ???

Mike Norman said...

Yes, and the loans are also helping Daimler, Volkswagon and BMW. Probably Toyota, Honda, Nissan and Hundai too!