The yuan neared a 19-year high of 6.2711/dollar overnight, with the punditry saying the PBOC is letting it rise on optimism about the economy's strength. In a TV appearance, Markus Rodlauer - the IMF's China mission chief - says the currency remains "moderately undervalued."
China intends to "push forward market-based liberalization of the interest rate" and steadily expand the use of the yuan in cross-border trading, says outgoing Premier Wen Jiabao. China will also encourage the development of private financial institutions.
Attempting to increase the internationalization of the won and the yuan, Seoul and Beijing form an agreement which will allow more trade between the two countries to be settled in local currency. Presumably most accounts are now settled by purchasing dollars, which then must be exchanged into either the won or yuan. Trade between the two was $220B in 2011.
Zhou Xiaochuan may be out of his job as PBOC Governor as the list of 205 members of the Communist Party central committee was broadcast today with his name left off of it. Governor since 2002, Zhou has presided over the steady (but not fast enough for many) rise in the yuan against the dollar.
Arguing the U.S. election won't impact the yuan, the PBOC's He Juanxiong says, "ultimately, it's the market that determines the yuan rate, and it is close to its equilibrium level." The PBOC's trillion dollar greenback reserves say differently, Mr. He. Romney has pledged to label China a currency manipulator his first day in office.
Their attention likely fixed on U.S. Presidential politics, China's mandarins allow the yuan to punch out another 19-year high vs. the dollar. Governor Romney made clear again last night his intention to label China a currency manipulator on Jan 21, 2013. The move would allow the president to slap tariffs on a range of Chinese goods.
The yuan hits a record high for the second day in a row, touching an intra-day peak of 6.2654 vs. the dollar in early trade. The PBOC set the yuan's midpoint at 6.3264, marginally higher than 6.3391 yesterday. "Clients' dollar sales are the key factor for the yuan to rise this week," says a dealer at a U.S. bank.
The yuan's rise to a 19-year high vs. the dollar is curious given the slowdown in China, but it's good PR for the Administration, and Dariusz Kowalczyk says an Obama victory is of great import for Beijing. Romney has said his first act as President would be to direct Treasury to label China a "currency manipulator."
Hit by slumping European sales, Ford (F) and other automakers are boosting numbers through "self-registrations" in which dealers sell cars to themselves and then offload the vehicles to customers as second-hand cars for big discounts. The practice accounted for 30% of industry sales in Germany from Jan-Aug, says Ford Europe exec Roelant de Waard, who was speaking ahead of the Paris Motor Show, which officially starts tomorrow.
The yuan hits its strongest level on record against the dollar, continuing a reversal of 2012's weakness as the risk rally since July has the greenback sliding against most of the world's major currencies. At the session low, the dollar was buying ¥6.2856.
The size of the PBOC's balance sheet is shrinking ... rapidly. Far from being a conscious decision to tighten monetary policy, the shrinkage has more to with capital flows. To fix the price of the yuan, the PBOC is forced to print as money flows into the country, but must sell securities as capital reverses. The policy means the PBOC has a very large stimulus bullet in its chamber - letting the yuan go.
The yuan gets another boost to its use in international trade as the central banks of Taiwan and China sign a yuan-clearing agreement, essentially allowing interbank trading of the currency in Taiwan. The country (does Beijing allow us to say that?) has the world's largest trade surplus with China.
Some Chinese state-owned banks have cut interest rates on foreign-exchange deposits as part of an attempt to combat the weakening yuan. The move comes after exporters loaded up on their dollar holdings. The rate cut should theoretically make forex deposits less attractive and discourage firms from aggressively selling the yuan.
"Fears of an unstoppable Chinese juggernaut are misplaced or outdated," writes Patrick Chovanec, urging to instead focus on a country stumbling badly and not knowing what to do next. How might the next President respond to a devaluation of the yuan, continued dumping of excess steel and other products, or even an escalation of military tension in the South China Sea (as Beijing tries to shift attention away from domestic issues).
China could find itself in a bit of a bind if the yuan continues to weaken, as the trend could prevent the PBOC from lowering interest rates to boost the slowing economy, Moody's says. Any rate cut could prompt further capital outflows - which hit a net $71.4B in Q2 - and so hurt efforts to speed growth up. The central bank has recently been propping up the yuan in the market by selling forex reserves.
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