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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (5412)	9/5/2005 12:59:03 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

China Manages to Limit Yuan Revaluation Impact, BIS Report Says Sept. 5 (Bloomberg) -- China has limited the impact of July's yuan revaluation on financial markets and damped speculation about a further appreciation in the currency, according to the Bank for International Settlements. Fluctuations in currency markets were ``modest'' because many investors already anticipated a stronger yuan and Asian central banks prepared their responses in advance, the BIS said in its quarterly review. On July 21, the People's Bank of China increased the value of the yuan by 2.1 percent and said it will manage its exchange rate against a basket of currencies. ``Markets took this long-awaited event in their stride,'' BIS economists led by Guonan Ma in Hong Kong wrote. ``One likely reason for the relatively subdued reaction is the announcement came 12 weeks after a brief episode that market participants considered to have been a `dry run.''' The ``episode'' refers to the yuan's gain on April 29 when the central bank let it strengthen to 8.2700 per dollar for about 20 minutes, the strongest since the exchange rate was fixed in 1995. ``Many market participants thought this was already the regime change and reacted accordingly,'' the BIS said. The yen rose 2.4 percent after China ended its fixed exchange to the dollar on July 21, before dropping 2 percent by the end of the month. The South Korean won, which climbed 1.4 percent on July 22, surrendered almost half the gain by July 31 while the Taiwan dollar erased almost all its 0.8 percent rise. The ``relatively subdued'' reaction to China's currency shift can also be attributed to preparations by other central banks, especially the Hong Kong Monetary Authority and Bank Negara Malaysia, the BIS said. `No Time to Speculate' The Hong Kong Monetary Authority on May 18 altered its currency policy to set a ceiling for the currency, which had been pegged to the U.S. currency at 7.8 for more than two decades, at 7.75 and a floor of 7.85. Malaysia's central bank abandoned its fixed exchange rate within hours of China's change. Malaysia's decision ``left market players no time to speculate on when the other shoe would drop,'' wrote the BIS team led by Ma, a former head of Northeast Asian research at Merrill Lynch & Co. in Hong Kong. The limited appreciation in the yuan since July 21 has also doused speculation China will allow much further strengthening any time soon, the BIS report said. China allows the yuan to gain or drop as much 0.3 percent per dollar each day. Other currencies in the basket include the euro, yen and Korean won. `Slow Pace' China hasn't allowed a daily fluctuation against the dollar of more 0.07 percent since the revaluation, according to data compiled by Bloomberg. The yuan appreciated 0.02 percent on Sept. 2 to 8.0935, the strongest since the dollar peg was scrapped. ``Given the slow pace of spot appreciation during this period,'' short-term forward contracts also reflect waning expectations of further gains in the yuan, the report said. The yuan would rise to 8.066 against the dollar in a month, according to forward contracts at 4 p.m. in Hong Kong on Sept. 2. The so-called implied rate declined from 8.04 on July 21. The contracts allow investors to bet on the future value of a currency that isn't fully convertible or hedge investments denominated in it. Forwards are agreements in which assets are traded at currently prices for delivery at a later specified time and date, and yuan forwards are non-deliverable because they are settled in dollars and not local currency. The BIS, formed in 1930, is based in Basel, Switzerland and provides banking services for 120 financial institutions, including central banks. bloomberg.com