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China removes the USD peg


flower

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This has been one big move in a very short space of time this morning--it has been some time coming, but from what is being said China has made a decision to "assist" domestic production so that Chinese domestic wages can be lifted. Skilfully executed over a weekend, just before the FOMC and G20 meetings.

 

Object of this thread is to highlight those "areas" where members see the ASX being most affected--either up or down.

 

Number one priority tonight is to see how all the other world currencies react.

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June 21 (Bloomberg) -- The yuan climbed the most in 20 months against the dollar and forwards jumped after China's central bank relaxed a two-year peg before a Group of 20 summit this week.

 

The currency advanced 0.36 percent to 6.802 per dollar as of 1:45 p.m. in Hong Kong, the biggest gain since Oct. 7, 2008, according to the China Foreign Exchange Trading System. The 12- month non-deliverable yuan forward rose 1.4 percent to 6.6209, implying traders are betting on a 2.7 percent appreciation.

 

A stronger yuan will help curb inflation in the world's third-largest economy and shift investment toward service industries from export-manufacturing, the People's Bank of China said yesterday. The move may also deflect criticism from President Barack Obama and other G-20 leaders, who say China relies on an undervalued currency to promote overseas sales.

 

"Investors are buying and testing the central bank's bottom line," said Liu Dongliang, a Shenzhen-based analyst at China Merchants Bank Co., the country's fifth-largest lender by market value. "But the central bank may take action when volatility is excessive."

 

Asian currencies gained, with South Korea's won strengthening 2.4 percent to 1,174.15 versus the greenback and the Taiwan dollar climbing 1.2 percent to NT$31.818. The MSCI Asia Pacific Index of regional stocks jumped 2.8 percent

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flower: Personally, I shall view anything below a min. sustained 5% appreciation as NOT meaningful at all.... (2.7% expected is really almost nothing... In normally traded currencies, this could be less than a daily fluctuation).

Also, Chinese exporters will just cut their profit by that, say, 2.7% currency influenced increase to remain strongly competitive... And NOTHING will materially change in a really significant way.

All JIMHO, of course.

wasa

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Agree 100%, Wasa.

 

... and again the question that really matters: What does it mean in real money? What is the relationship between AUD and Yuan?

Long-term (weekly) chart: nice bounce off 61.8% Fib, resuming the one-year rise (Aussie valued HIGHER in Yuan terms)

 

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On a Daily scale, last night's announcement hasn't made a noticeable difference at all. Of course, one could split rabbits and claim that Currency Traders somehow "knew" this would happen and started to push the Aussie higher 4-5 weeks ago :ph34r:

 

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But looking at the relationship between the Greenback and Yuan, the unpegging (was it really???) has had a more "dramatic" effect, at least on a Daily scale. ... until you look more closely and calculate the relative change: -0.52%. :o

 

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And on the long-term weekly scale? Again: "ho-hum" :blink:

 

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Wasa--believe you are somewhat missing the point in as far as it effects the ASX Commodity area.

 

A stronger Yuan will make Chinese raw material imports cheaper--thereby increasing demand for those materials directly affecting the ASX commodity stocks, we saw some of this today immediately the announcement came through on the first day of trading since the announcement was made in China.

 

The US has already made the point that any move must major in percentage to be meaningfull, lets see what happens at the G20 meeting.

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flower: The RMB's min. aimed at flexibility is NOT NECESSARILY going to influence other currencies in "expected" ways (i.e. the currencies from commodity based countries like Canada and Australia, for instance) might show bigger fluctuations upwards than the RMB and hence there may NOT be a net gain per se. All JIMHO, of course. And time will tell.

wasa

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London, 21 June 2010 - The base metals are up strongly this morning on the back of the news that China will let the yuan exchange rate move more freely - a stronger currency will make imports cheaper which should help drive demand for those metals China imports

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Wasa: Just looking at commodities, the above is what base metals.com had to say tonight.

 

Its all about DEMAND.

 

If for example Twiggy increases his sales because of the resultant increased demand from China by 30%, it follows that FMG increases sales in USD's by 30%..

 

Is it likely his costs will rise by 30% or more in AUD----hardly think so.

 

Anyway lets see what happens in the ensuing weeks to ASX commodity share prices.

 

Put another way: Is it NOW likely the US/AU rate will climb to $1.15?

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An interesting read, as we all probably suspected. So did the markets get ahead of itself yesterday?????????

 

Wall StreetÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s yuan rally faded this morning as reality bit: itÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s going to be a peg crawl, not a revaluation, itÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s unlikely to be the sort of big reflation event the world arguably needs right now, and it might even be bad for bonds and the US dollar.

 

On the whole, the overnight commentary about ChinaÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s weekend announcement, and the 0.4 per cent rise in the yuan yesterday, has been universally sceptical ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ about ChinaÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s real intentions and the impact of its weekend announcement.

 

And while ChinaÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s gesture towards currency flexibility ahead of the G20 meeting in Toronto this weekend and the fact that it started delivering on the promise so quickly yesterday is definitely good news for the world economy and specifically AustraliaÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s, letÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s not get carried away.

 

It is mainly a political, not economic, move ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ designed to get the Obama administration and US Congress off ChinaÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s back. As such the yuan will only rise as much as necessary to achieve that. Most analysts reckon thatÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s no more than 5 per cent a year and possibly more like 3 per cent.

 

http://www.businessspectator.com.au/bs.nsf/Article/The-yuan-will-creep-not-jump-pd20100622-6MSNJ?OpenDocument&src=sph

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IF Australia will REMOVE the "K.RUDD peg" (resp. his idiotical idea of punishing mining companies in Australia), that will have a much bigger impact upon the well-being of Australia than any tinkering with the RMB exchange rate. JIMHO, of course.

Hope he and his party will be voted out - the sooner the better...

wasa

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  • 2 weeks later...

Shanghai looks very oversold---IMO

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China Stocks Drop Signals 65% Rally to Morgan Stanley

 

"Morgan Stanley, BNP Paribas SA and Nomura Holdings Inc. say stocks will rally as ChinaÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s June 19 decision to end the yuanÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s two-year peg to the dollar helps curb inflation and asset bubbles. The Shanghai index rose 62 percent in 12 months after China last allowed a more flexible exchange rate in July 2005"

 

http://noir.bloomberg.com/apps/news?pid=20...id=aoG2qkHmFUxo

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