Week in FX Asia – Wave a Red Flag To The Yuan

There was a lot of noise and very little new information surrounding the Chinese Yuan this week. Most of the noise came from within the Central Bank ‘circle.’ The governor of the PBoC Zhou Xiaochuan discussed widening the trading bands around the USD/CNY fix and possibly reducing the Central Bank’s intervention in the market in a published white paper on “financial and currency market liberalization.” His second in command added further excitement to the highly controlled currency by stating that it was no longer in “China’s favor to accumulate foreign exchange reserves.”

The market ‘read and listened,’ but so far it has not gyrated too far from the previous expectations of a gradual appreciation of the CNY outright or an imminent widening of the trading bands. Why not? Zhou’s article is being perceived as a statement of intent of a gradual, multi-year reform program, nothing immediate. Any Chinese financial liberalization is expected to come at a pace that the government feels comfortable with. Governments like growth. Progressive global growth is a necessity; it needs to lead to faster growth in Chinese exports, more than what currently exists. This week, weaker than expected flash HSBC’s China PMI suggests that the country’s tepid growth (+5.6%) may even slow further over the coming months. Regarding intervention, unless authorities are willing to allow rapid CNY appreciation (highly unlikely and to the dismay of some US politicians), there really is no choice but having the PBoC to intervene.

The Yuan is ending the week with limited losses because market participants remain cautious as they wait for more details to emerge on the announced financial and currency reforms. Everyone continue to focus on the word “gradually.” The Yuan has risen +2.3% this year, and one-year dollar/Yuan non-deliverable forward contracts rose to 6.1490/6.1520 from 6.1440/6.1465, implying a -0.9% fall in the Yuan value over the next year.

• China Banking Regulator To Crack Down on Shadow Banking Products –
• WTO Agreement Could Be Reached Next Week –
• RBA Threat sees AUD/USD down to 0.9220 –
• USD/JPY up to 101.20 as Kuroda Pledges to Hold Down Yields –
• China’s New Rules Designed to Help E-Commerce Sector –
• China PMI sees Most Asian Equities Lower –
• China’s Growth Momentum Softens a Little –
• China Manufacturing Activity Cools in November –
• Singapore Raise 2013 GDP Forecast On Strong Q3 Growth –
• Concern over Asian Growth –
• Japan Exports Continuing Steep Climb –
• Mainland Chinese Stocks Valued Lower As Locals Disillusioned About Economic Reforms –
• China Small Investors Give Gold a Boost –
• Japan Government to Finalize Stimulus Package Next Month –
• Japan Considering Removing Tariff Exemptions on Farm Products –
• Indian Central Banker Promises To Remake Banking Sector –
• China Pledges More Forex Flexibility –
• China Reaches Top Gold Buyer Passing India –
• China Attracts 5.8 Percent More Investment in 2013 –

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