Traders Bet on 5% Revaluation of Chinese Yuan in Hong Kong Forward Market

by: Gary Dorsch

Traders in Hong Kong are betting the Chinese yuan will appreciate 5% to 7.705 per dollar over the next 12-months. There has been no decision yet to delay a scheduled Senate vote this month on a bill threatening China with steep 27.5% US tariffs on its exports if Beijing does not revalue its currency.

"Senator (Lindsey) Graham has not agreed to delay a vote on the China currency legislation," said Kevin Bishop, a spokesman for the South Carolina Republican. "No decision has been made and any insinuation to the contrary is nothing more than uninformed speculation." China is paving the way for a more flexible yuan by developing hedging instruments for banks and companies that deal with increased currency risk.

China's trade surplus tripled to more than $90 billion in the first 11 months of the year. "We have heard vows from very top- to mid-level officials saying they are going to undertake the kind of change and adjustments that we have asked them to undertake," Under Secretary for International Affairs Timothy Adams said in New York. "We are now looking for action. Action is what is needed and action is what is expected," he said.

The Treasury's faith that Beijing will follow through on that commitment was key to China not being named in the Treasury's latest biannual report on currency market manipulation. China's yuan will appreciate gradually, benefiting both the domestic and global economies, "Following the exchange rate reforms, the yuan will slowly rise within a managed range," said Yu Yongding, chief economist for the Bank of China on December 27th.