China Unpegs Yuan Against Dollar

June 21, 2010

The yuan is 0.4% firmer against the U.S. currency following Saturday’s announcement by the central bank that “it is desirable to proceed further with reform of the renminbi exchange rate regime and increase the renminbi exchange rate flexibility.”  The action was taken one week before a summit of G-20 leaders in Toronto and against the backdrop of solid Chinese growth and increasing foreign criticism of the 23-month-old yuan/USD fixed parity.  A top Chinese Commerce Department official underscored that the reform would be controlled and gradual.  Unlike a similar action in July 2005, the change was not kicked off with a stochastic revaluation of the parity rate.

Although the yuan’s overnight movement was small, investors reacted disproportionately, believing yuan appreciation will promote greater world growth.

The U.S. dollar has risen 1.6% against the euro and 0.7% versus the yen, but it shows losses of 1.3% against the Aussie dollar, 1.1% against the kiwi, and 0.5% vis-a-vis the Canadian dollar.  The greenback edged up 0.1% against the Swissy and edged down 0.1% relative to sterling.

Stocks rose strongly in the Pacific Rim and Europe.  Gains amount to 2.4% in Japan, 3.1% in China and Hong Kong, 1.7% in India, 1.9% in Taiwan, 1.6% in South Korea, 1.8% in Singapore and Thailand, 1.3% in Malaysia, 1.1% in Sri Lanka, and 1.3% in Australia.  European equities are trading higher by 2.1% in Spain, 1.5% in France, 1.3% in Germany and 1.0% in Great Britain.

Oil shot up 1.8% to $78.53 per barrel.  Gold hit yet another record high but presently shows a net rise of just 0.1% at $1259.10 per troy ounce.

Ten-year sovereign bond yields firmed 2 and 1 basis points in Germany and Japan but are down 4 bps in Britain.  Some analysts think China’s action will promote higher long-term Treasury rates.  British Chancellor of the Exchequer Osborne will present a very austere budget tomorrow.

Japan’s all-industry index advanced 1.8% in April, reflecting gains of 2.1% in the tertiary index and 1.3% in industrial production but a decline of 4.3% in construction.  The all-industry index was 3.8% greater than a year earlier and 0.5% above its first-quarter average level. 

Japanese department store sales in May were 2.1% lower than a year earlier, which is a smaller 12-month drop than recorded in April.

Motor vehicle sales in Australia sank 3.2% in May but remained 16.4% greater than in May 2009.

Taiwanese export orders slid 0.7% last month and posted a somewhat smaller-than-forecast 34.0% on-year increase in January-May.

Britain’s Rightmove house price index firmed 0.3% in June and accelerated to a 5.0% 12-month rate of rise from 4.3% in April.

The ECB favors an element of automaticity in future sanctions against common currency members that run excessive budget deficits.

Swiss M3 rose 7.3% in the year to May after a 12-month climb of 5.4% in April.

Italy’s current account deficit narrowed to EUR 3.8 billion in April from EUR 5.3 billion in March.

Hungary’s central bank is expected to leave its key interest rate at 5.25% later today.  Britain’s revised budget gets unveiled tomorrow.  On Wednesday, flash PMI readings for Euroland, Germany and France get reported, and the FOMC announces its latest decision and thinking on monetary policy.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.