Saturday, June 26, 2010

China approved to free its Yuan in order to support financial markets this week


Forex Special

Many important data was released during the week including the decision of the Chinese central bank about freeing its Yuan and revaluation against the dollar, where the decision affected global markets, as investors began to review the decision's effects on global economies.
The People's Bank Of China (PBoC) said that the Yuan revaluation against the dollar announced by the President on Sunday will be in stages, adding it may take considerable time from monetary policy makers to find the suitable strategy in order to balance between accelerating inflation risks and avoiding any asset bubbles, as the U.S increases the pressure on the world's third largest economy to free its currency.
Moreover, today's decision came after fixing the Yuan’s value against dollar at 6.83 in July, 2008, which supported sales of goods and services to the U.S., China's second largest market, during the global financial crisis. Weaker Yuan supported Chinese exports to become the world's largest exporter last year.
The PBoC began to think seriously on freeing the Yuan, especially after the noticeable growth acceleration during the first quarter when the economy grew an annual 11.7%, also rising global pressures, especially from the U.S. on the Chinese President Hu Jintao to free the Yuan from the excessive rate control.
Analysts expect the Yuan to increase by 0.2% against the dollar to 6.815, and 0.4% during the week, especially after the Central bank's decision to ease the peg against the dollar, before the G 20 meeting on 26-27 of the current month in Toronto, Canada.
As for Mr. Kim Choong Soo the Governor of South Korea's central bank, he noted that it is too early to declare that the nation's economy exceeded expected growth, while he expects that during the second half of the year, inflation rate will reach 3%, thus interest rates are likely to increase during the upcoming meeting.
Moreover, the central bank increased its upcoming three years inflation target which provided monetary policy makers with a chance to keep the interest rates at low levels amid governmental pressure, as the bank set the comfort inflation target between 2 % and 4% from 2010 to 2012, after reaching 2.5% and 3.5%, where inflation accelerated during last May to 2.7%, and that will lead to a change in monetary policy during the upcoming meeting.
Moving to New Zealand's economy which released the Gross Domestic Product reading for the first quarter, where the index showed an actual expansion of 0.6% compared with the pervious expansion of 0.8% which was revised upwards to 0.9%.
Annual GDP recorded the expected expansion of 1.9% during the first quarter of the year compared with the previous expansion of 0.4% a year earlier which was revised to 0.5%. Today's data boosts the nation's recovery to record a second year of recovering from its worst recession in three decades.
Finally the Japanese economy issued the consumer prices index annual reading that came at -0.9% during May, compared with a previous reading of -1.1%, while the expectations were set at -1.1%.
Also Natl consumer price index excluding fresh food and energy annual reading for May showed a -1.6% drop as expected, also the actual reading came inline with the previous reading as well.
The MSCI Asia Pacific Index ended Friday’s trading by falling 1.7% to 115.15. Nikkei 225 ended Friday’s trading by falling 1.92% to close at 9737.48. The S&P/ASX 200 closed on Friday at 4413.00 after falling 1.49%. Hang Seng ended Friday’s trading by falling 0.21% to close at 20690.79.

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