Updated September 28, 2012, 1:29 p.m. ET
As Yuan Tests Dollar High, Beijing Comes to Pivot Point
.
By LINGLING WEI
BEIJING — China's yuan on Friday briefly hit its highest level against the U.S. dollar since the launch of the modern Chinese currency-trading system in 1994, underscoring the global impact of U.S. efforts to juice its economy and raising tough questions for Beijing over whether to tolerate or stop further strengthening.
Traders and analysts attributed the recent rally to renewed weakness in the dollar in the wake of the latest round of bond purchases launched by the U.S. Federal Reserve, in a move known as quantitative easing. The Fed's move has pushed down the value of the dollar and led investors to plow capital into emerging markets, such as China, to seek higher returns.
The rise could create problems for Beijing. The Chinese government is under pressure to take steps to rekindle economic growth, which has slowed to its lowest level since the global financial crisis and raised worries over potential factory closures and job losses. A stronger yuan hurts China's key export sector because it makes Chinese goods more expensive abroad in dollar terms.
The situation is coming to a head as China prepares for a once-a-decade leadership change set to begin in November, giving it an incentive to keep the economy humming to quell social unrest. At the same time, China has ambitions to give its currency a more prominent place on the world stage.
.
.
That means making it more responsive to market forces. China still strictly controls its currency but has made a number of moves over the past two years to give markets more say in its direction.
Until recently, the euro-debt crisis and a weakening U.S. economy had led investors to rush into the relatively safety of U.S. dollars while betting on a decline in the yuan's value, a sharp reversal from the past few years when investors viewed the yuan as a surefire bet to rise in value. But the yuan in recent days has recouped all of its losses for the year.
"The recent appreciation of the yuan should help investor sentiment toward yuan-denominated assets, particularly in light of overblown fears of continued depreciation of the yuan," said Suanjin Tan, portfolio manager of a yuan-bond fund at BlackRock Inc.
Further aiding the yuan's strength Friday: domestic businesses dumped dollars for the yuan on speculation that China will take more monetary-easing measures to arrest the economic slowdown.
.
.
Such a move would typically put short-term downward pressure on the yuan, but any increase in optimism over the Chinese economy could strengthen the currency.
.
.
The speculation was triggered by a record amount of cash injected into China's banking system by the central bank this past week, as well as the approach of the weeklong National Day holiday that begins Oct. 1.
"People don't want to be short of the renminbi during the weeklong holiday in case the government announces any measures to stimulate the economy," WoonKhien Chia, a currency analyst at Royal Bank of Scotland, referring to the yuan's other name.
Many market players, however, expect the bounce in the yuan to be short-lived. China's central bank, the People's Bank of China, "could still try to push down the yuan's value to help Chinese exporters," Ms. Chia said, adding that she doesn't expect the yuan's rally to last the next couple of months.
.
.
BlackRock's Mr. Tan said that despite the renewed strength in the yuan, he will continue focusing on "the underlying credit quality" of the yuan-denominated bonds he buys. "We're not going to change our investment process just because the yuan is appreciating again," he said. The fund has about 600 million yuan ($95.2 million) in assets under management.
Edmund Harriss, who manages a $90 million yuan bond and currency fund for Guinness Atkinson Asset Management, said he is seeing more investor interest in yuan-denominated bonds than the currency itself, since they offer better yields than U.S. Treasurys.
The yuan has experienced rare ups and downs this year as China moved to let market forces play a bigger role in deciding its value. It consistently weakened against the dollar early this year after a year and a half of appreciation, falling as much as 1.6% against the greenback in late July.
.
.
Since then, the Chinese currency has reversed course, and reached the strongest intraday level since modern trading began in 1994 against the dollar on Friday, at 6.2835 per dollar. The yuan, which ended at 6.2849 versus the dollar, is now up 0.14% this year. It has risen nearly 32% against the dollar since Beijing dropped its peg to the U.S. currency seven years ago.
.
.
The PBOC maintains a tight grip on the yuan's value by setting a daily rate for it, known as the parity rate. In April, it widened the range in which the yuan is allowed to rise and fall in daily trading, to 1% above or below the parity rate from 0.5% previously. The move was a signal that China believes the currency is fairly valued and ready to take a more prominent role globally.
"An interesting phenomenon we're seeing is that the yuan has become more volatile since April, indicating a more market-driven currency regime," said Beng-Hong Lee, Deutsche Bank AG's head of trading in China.
Even with the PBOC introducing a wider trading range, the yuan is still one of the world's stablest currencies. The yuan is up 1.7% since hitting its 2012 low in mid-July; the WSJ Dollar Index, measuring the dollar against a basket of major currencies, fell 3.5% over the same period.
"You don't see the wild swings like you do in most emerging-market currencies," said Chuck Butler, president of EverBank World Markets, a St. Louis firm that sells foreign-currency certificates of deposit. "To me, that's a very comforting thing."
Despite the yuan's bounce Friday, many traders pointed out that the 6.3410-per-dollar parity rate set by the PBOC before the day's trading began showed that it still guided the yuan weaker than its closing level of 6.2940 at the end of last year, indicating the central bank's desire to keep the yuan from appreciating too fast against the dollar.
Kevin Chen, chief investment officer at Anji Capital Management, a New York-based global macro fund, doesn't expect the yuan to move much from current levels. He thinks the PBOC will hold back from more monetary stimulus to avoid stoking the country's property bubble.
.
.
"A lot of people have misplaced faith in the central bank to save the day," Mr. Chen said. Instead of betting directly on the yuan, Mr. Chen started betting against currencies that are sensitive to China's economy, such as the Australian dollar, and commodities that China imports, including oil, coal and copper.
Until late last year, when China's slowing economy began to weigh on the yuan, the PBOC had frequently intervened in the currency trading to prevent a sharp jump in the yuan's value. Some traders say the central bank could renew its intervention in the coming weeks should the yuan continue to rise sharply.
.
.
In addition, Beijing has its eyes trained more than just the dollar. The European Union so far this year has been China's No. 2 export market, after the U.S., and China is believed to also have the incentive to prevent the yuan from appreciating too much from the euro. By reducing the value of the yuan against the dollar, the PBOC could slow the rise of the yuan against the euro, analysts say.
But any fall in the yuan is bound to keep it a political issue in the U.S. during an election year in which the Obama administration continues to publicly push China to let its currency appreciate. Some U.S. businesses and lawmakers have accused Beijing of keeping the yuan artificially weak to help its exporters.
.
.
Meanwhile, Republican presidential challenger Mitt Romney has said he would name China a "currency manipulator" if elected, which could lead to trade sanctions against the country.
.
—Nicole Hong and Matthew Walter contributed to this article.
.
0 comments:
Publicar un comentario