LexisNexis(TM) Academic - Document
LexisNexis(TM) Academic - Document
Copyright 2005 The Financial Times Limited
Financial Times (London, England)
July 23, 2005 Saturday
London Edition 1
SECTION: FT MONEY - MARKETS WEEK UK; Pg. 19
LENGTH: 540 words
HEADLINE: Speculation abounds on China's next move CURRENCIES
BYLINE: By STEVE JOHNSON
BODY:
A decision by China to finally bite the bullet and scrap the renminbi's increasingly controversial decade-long peg to the dollar sent ripples through the currency market this week.
Beijing has come under mounting pressure from the US and other trading partners to revalue its currency, while rampant growth and fears of asset price bubbles in China also pointed to currency appreciation as a way of dampening economic conditions.
But Thursday's move still caught traders on the back foot, with most analysts expecting a revaluation later in the year.
Beijing revalued the renminbi by 2.1 per cent to Rmb8.11 to the dollar and introduced a new managed float against an unspecified basket of currencies, mirroring a system already employed by Singapore.
Many analysts believe that either there will be further revaluations to come or that China will allow its currency to creep higher. The renminbi is allowed to fluctuate by up to 0.3 per cent against the dollar each day.
However, if the latter theory is true, Beijing seems intent on allowing the market to settle down first. Yesterday the renminbi closed slightly lower at Rmb8.1111, with the People's Bank intervening to stop it strengthening from its opening level.
"It would be absolutely wrong for China to allow the currency to strengthen immediately because it would encourage speculative forces," said Hans Redeker, head of currency strategy at BNP Paribas.
Mr Redeker forecasts that Beijing will allow the renminbi to firm to 7.9 to the dollar by the year-end, with a second revaluation next year taking it to 7.5.
UBS sees 7.95 by December and 7.75 by the end of 2006, while a more conservative Bank of America believes the renminbi will end 2005 at 8.11 to the dollar, before being allowed to firm to 7.89 by June 2006. As of yesterday, 12-month non-deliverable forward contracts were pricing in a rate of 7.6989.
China's move was immediately followed by Malaysia, which ditched its dollar peg and announced a managed float for the ringgit. However, intervention was again yesterday's theme with the Bank Negara Malaysia limiting ringgit gains to 0.7 per cent at MDollars 3.775 to the dollar.
The long-awaited Chinese revaluation is seen as lifting all of Asia's managed currencies, with central banks able to allow appreciation against western currencies without losing competitiveness against China.
Two currencies that missed out on gains on Thursday rose yesterday, with the South Korean won firming 1.5 per cent to Won1,020 to the dollar and the Taiwan dollar gaining 1.3 per cent to TDollars 31.54, with both countries again said to be intervening to limit gains.
However, the yen, which led Asian currencies higher on Thursday, handed back some gains with the realisation Beijing was not allowing further renminbi gains. The Japanese currency ended the week up 0.7 per cent at Y134.06 to the euro, 1 per cent at Y111.06 to the dollar and 1.7 per cent to Y193.30 against sterling.
The Australian dollar rose 2.3 per cent to Dollars 0.7658 against the greenback over the week, aided by China's increased purchasing power for its commodities.
Sterling was the week's big loser. The pound fell 0.6 per cent to Dollars 1.7408 against the dollar and 1 per cent to Pounds 0.6935 against the euro.
LOAD-DATE: July 22, 2005
Copyright 2005 The Financial Times Limited
Financial Times (London, England)
July 23, 2005 Saturday
London Edition 1
SECTION: FT MONEY - MARKETS WEEK UK; Pg. 19
LENGTH: 540 words
HEADLINE: Speculation abounds on China's next move CURRENCIES
BYLINE: By STEVE JOHNSON
BODY:
A decision by China to finally bite the bullet and scrap the renminbi's increasingly controversial decade-long peg to the dollar sent ripples through the currency market this week.
Beijing has come under mounting pressure from the US and other trading partners to revalue its currency, while rampant growth and fears of asset price bubbles in China also pointed to currency appreciation as a way of dampening economic conditions.
But Thursday's move still caught traders on the back foot, with most analysts expecting a revaluation later in the year.
Beijing revalued the renminbi by 2.1 per cent to Rmb8.11 to the dollar and introduced a new managed float against an unspecified basket of currencies, mirroring a system already employed by Singapore.
Many analysts believe that either there will be further revaluations to come or that China will allow its currency to creep higher. The renminbi is allowed to fluctuate by up to 0.3 per cent against the dollar each day.
However, if the latter theory is true, Beijing seems intent on allowing the market to settle down first. Yesterday the renminbi closed slightly lower at Rmb8.1111, with the People's Bank intervening to stop it strengthening from its opening level.
"It would be absolutely wrong for China to allow the currency to strengthen immediately because it would encourage speculative forces," said Hans Redeker, head of currency strategy at BNP Paribas.
Mr Redeker forecasts that Beijing will allow the renminbi to firm to 7.9 to the dollar by the year-end, with a second revaluation next year taking it to 7.5.
UBS sees 7.95 by December and 7.75 by the end of 2006, while a more conservative Bank of America believes the renminbi will end 2005 at 8.11 to the dollar, before being allowed to firm to 7.89 by June 2006. As of yesterday, 12-month non-deliverable forward contracts were pricing in a rate of 7.6989.
China's move was immediately followed by Malaysia, which ditched its dollar peg and announced a managed float for the ringgit. However, intervention was again yesterday's theme with the Bank Negara Malaysia limiting ringgit gains to 0.7 per cent at MDollars 3.775 to the dollar.
The long-awaited Chinese revaluation is seen as lifting all of Asia's managed currencies, with central banks able to allow appreciation against western currencies without losing competitiveness against China.
Two currencies that missed out on gains on Thursday rose yesterday, with the South Korean won firming 1.5 per cent to Won1,020 to the dollar and the Taiwan dollar gaining 1.3 per cent to TDollars 31.54, with both countries again said to be intervening to limit gains.
However, the yen, which led Asian currencies higher on Thursday, handed back some gains with the realisation Beijing was not allowing further renminbi gains. The Japanese currency ended the week up 0.7 per cent at Y134.06 to the euro, 1 per cent at Y111.06 to the dollar and 1.7 per cent to Y193.30 against sterling.
The Australian dollar rose 2.3 per cent to Dollars 0.7658 against the greenback over the week, aided by China's increased purchasing power for its commodities.
Sterling was the week's big loser. The pound fell 0.6 per cent to Dollars 1.7408 against the dollar and 1 per cent to Pounds 0.6935 against the euro.
LOAD-DATE: July 22, 2005
posted by Eastlaw at 12:53 AM
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