Tuesday, April 13, 2010

Will China Strengthen The Yuan? How will that change the world?

Goldman Says China Trade Deficit Won’t Last, Yuan Gain Likely

Business Week — China’s March trade deficit is temporary and the pressure for the yuan to gain remains intact, according to Goldman Sachs Group Inc.

“The weak exports in March were likely due to the Lunar New Year effects as exporters suspend production for an extended period after the holiday,” wrote Hong Kong-based analysts Song Yu and Helen Qiao in a report on April 10. “Given the strong underlying exports growth and rising overheating pressures, we believe a modest yuan revaluation is still on the agenda.”
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Yuan Rise Would Boost Asian, Commodity-Backed Currencies

Wall Street Journal — Any appreciation of the Chinese yuan should lift other Asian currencies along with it, while helping to diffuse the recently stressed tenor of Sino-U.S. relations.

Speculation is increasing that China will allow the yuan to strengthen, but the country's leaders aren't likely to make a huge adjustment for fear of shocking markets and derailing a nascent economic recovery. Assuming the government releases the yuan from its current tight range versus the dollar, analysts expect the Chinese currency to appreciate 1% to 3% against the dollar over the following 12 months.
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Stronger yuan may deal another blow to euro

Reuters — A loosening in China's yuan policy that lets the currency rise while keeping it pegged to the dollar may deal another blow to the battered euro as such a move is seen slowing China's accumulation of foreign reserves.

The euro has weakened about 7 percent versus the dollar and the yen this year on concerns Greece may face problems servicing its debts, and demand for euro assets will shrink further if a possible yuan move results in less euro buying by China.
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