Chinese Yuan, ready to float?
It was a quiet weekend for me but not for the PBoC Governor Zhou. He came out with a few comments which sent speculation throughout the market that Yuan will break its peg with the Dollar at some point this year. The comments were as follows,
Zhou called the current FX policy a “special measure” adopted under unusual circumstances.
He said that “this is part of our package of policies for dealing with global financial crisis”
“These kinds of policies sooner or later will be withdrawn”
“If we are to withdraw from unconventional policies and return to conventional economic policies, we need to
choose the time very carefully. This includes the exchange-rate policy of the renminbi.”
“The G20 Pittsburgh summit also particularly pointed out the need to avoid the premature withdrawal of stimulus
policies.”
“The exchange-rate mechanism and the price of the renminbi are in a dynamic process of continuous change
so they will differ in different periods.”
These comments are a far cry from previous statements coming out of China of a need for a stable currency.
Clearly there is a move coming but I think it will be later on in the year (I was looking for a move around Chinese New Year and obviously I was wrong there). On the open today there was selling pressure on the outright’s. The 6-12 month period should continue to take the majority of the selling pressure. Possible buying some short end protection in the 1-3 month bracket would be helpful in offsetting the negative carry. Also I am not looking for a big once off revaluation or a total free float. I think the most likely scenario would be of a slow and steady revaluation, possible with an increased pace to get the market prepared for the eventual managed float.
For other opportunity’s look at other Asian currency’s which are heavily correlated to the Yuan. Singapore, Thailand and Malaysia all are used as proxy’s for the Yuan.
Good Luck and Good Forex Trading
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