Week In FX Asia – Chinese Fortunes Tough to Pin Down

Should we be concerned about the rumors of a pending credit crunch in China? The beauty of a one-party system is its political flexibility. With authorities having the power and ability to strike a balance quickly between reforms to its financial sector and economic expansion, it should allow China to achieve its growth target of +7.6% this year. But the reality is that issues surrounding China’s shadow banking system are not going away any time soon — their growing domestic U.S. debt levels are making the global markets a tad nervous. Analysts are worried about investment dominating gross domestic product growth.

Whenever discussing China, it’s not too much of a surprise to see the nation’s data defy even the most bullish of market expectations. Earlier this week, Chinese imports were up +10% year-over-year against +4% expected, while exports rose +11% against a flat forecast. If anything, numbers like these lead to more questions. How accurate are they and is the market comfortable with them? Only a few should be able to answer that in the affirmative, especially with such a big miss. It seems rather convenient that when the market ever doubts the global economy, Chinese data comes up trumps. Despite this, China’s widened trade surplus and continued capital inflows should show that the yuan remains under pressure to appreciate. Analysts are expecting the RMB to finally break that psychological 6.0 handle later this year. But one must consider the interfering People’s Bank of China (PBoC) before jumping to conclusions.

The yuan closes out the week falling against the dollar after further PBoC intervention. Authorities set the dollar/yuan at 6.1070. Lately, the PBoC has been actively slowing its rising pace especially after the massive dollar sell-off that was initiated at the beginning of the year. It’s noteworthy to mention the yuan has fallen -0.2% since the start of 2014 after gaining +2.9% last year.

• China’s Producer Prices Fall Again
• Asian Equities Mixed after China Inflation Data
• Chinese Inflation Remained Stable in January
• China’s Inflation Remains Benign
• Asian Stocks Recovering Yesterday’s Losses
• Japan’s Q4 Growth Boosted By Pre-Tax-Hike Shopping
• China Limits Bank’s Off Balance Sheet Investments
• Japan Machine Orders Fall 15.7 Percent in December
• Australian Unemployment Soars to 6%
• Malaysia Budget Deficit Narrowing
• Singapore Aiming To Position Itself as Region’s Legal Hub
• Thailand To End Rice Scheme
• BoJ Kuroda Says He is Ready to Adjust Policy if Needed
• IMF Official Says BoJ Does Not Need to Ease Further
• Singapore Faces Real Estate Bubble Challenge
• China’s Trade Data Eases Concerns
• Chinese Banks Face Competitions From Private Funds
• Yellen Agrees BoJ Stimulus Needed
• Japan’s Current Account Surplus Decline Could Signal Trouble
• China Missing out on Billions in Lost Taxes
• Abenomics Should be Widely Accepted

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