Would like to share a fantastic post on MW which explains why the Yuan has been soaring right after the S&P's US debt downgrade. In toto, there are three factors which are influencing the Chinese exchange rate policy.
Over the course of less than two weeks, the Chinese currency’s value rose a significant 0.63% against the dollar. The yuan-dollar exchange rate slipped below 6.4 yuan for the first time Aug. 17, closing at 6.3996.
Continued inflationay pressures- Since monetary authorities are keen about inflation concerns, as well as constraints on using interest-rate adjustment as a policy instrument, they found ample reason for letting the yuan appreciate. (Please note that the nation's CPI has struck 6.5% in July and the price pressures are expected to ebb somewhat in the coming months...but the overall scenario reamins worrisome)
Possible Quantitative Easing In the US...brace up for a QE 3....as Ben Bernanke cautioned the markets in his latest speech at Wyoming....China’s inflation problems could deepen if, in hopes of strengthening the U.S. economy, the Federal Reserve extends its accommodative monetary policy or even launches a QE3. Analysts say accelerating the yuan’s appreciation was considered a reasonable countermeasure to this kind of future inflationary threat.
Chinese government seems to be keen in maintaining high gross domestic product growth rates through trade surpluses. China’s exports in July broke monthly records again, rising more than 20% from the same month last year to more than $175 billion. The trade surplus for the month topped $31.4 billion, the highest since February 2009.
Read the whole report here
No comments:
Post a Comment