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23:55 Monday 21 June, 2010

The yuan rose the most since a July 2005 revaluation and forwards jumped after China’s central bank ended a two-year peg before a Group of 20 summit this week.

The currency advanced 0.42 percent to 6.7976 per dollar as of 5:30 p.m. in Hong Kong, the biggest gain since July 2005, according to data compiled by Bloomberg. The 12-month non- deliverable yuan forward rose 1.1 percent to 6.6425, implying traders are betting on a 2.3 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.

“It will be a very gradual appreciation but it could be front-loaded,” said Nizam Idris, a Singapore-based currency strategist at UBS AG, the world’s second-largest foreign- exchange trader. “The yuan will appreciate about 4 percent this year and 5 percent next year.”

23:52 Monday 21 June, 2010

Global stocks gained for a 10th day, sending the MSCI World Index to its longest rally in 11 months, oil and copper soared and Treasuries retreated after China signaled it will relax the yuan’s fixed rate to the dollar.

The Standard & Poor’s 500 Index rose 1.2 percent and the Stoxx Europe 600 Index climbed to the highest point since May 13 at 9:58 a.m. in New York. The MSCI Asia Pacific Index jumped 2.5 percent, the most in more than two weeks. Oil exceeded $78 a barrel, copper gained more than 3 percent and gold reached a record in New York. The Korean won strengthened as the yen and dollar fell against most major currencies, while the 10-year Treasury yield surged 8 basis points to 3.3 percent.

Stocks rallied from Tokyo to New York after the People’s Bank of China said it will end a two-year currency peg adopted during the global financial crisis to protect exporters, a sign policy makers expect the world economy to strengthen. China, the world’s largest copper consumer and second-biggest user of oil after the U.S., signaled the change before the G-20 summit in Toronto on June 26 to 27.

“China’s move is a positive,” said Burt White, who helps oversee $284 billion as chief investment officer at LPL Financial Corp. in Boston. “It’s going to help exporters in the U.S. and Europe. It shows that China and the U.S. will continue to be the two main engines of growth. Commodities are pricing in a strong advance in the global economy. The stock market has good momentum.”

09:31 Monday 21 June, 2010

The dollar fell against most of its major counterparts after China signaled an end to the yuan’s fixed rate to the greenback, boosting confidence in the global economic recovery.

Australia’s and New Zealand’s dollars advanced to one-month highs after China said it may allow the yuan to move higher, boosting demand for nations who sell products to the world’s third-largest economy. The People’s Bank of China two days ago indicated it’s abandoning the 6.83 yuan peg to the dollar adopted during the global crisis to shield exporters.

“It’s a vote of confidence in Asia and in risk appetite and a reduction in the dangers of a trade war,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “The currencies of Asian nations which are close competitors with China on the trade front should do well,” along with Australia and New Zealand’s dollars, he said.

09:29 Monday 21 June, 2010

The yuan’s appreciation may be limited to 1.9 percent against the dollar this year as the euro’s slump hurts exporters, a survey of economists showed after China signaled an end to a two-year peg.

The currency will climb to 6.7 per dollar by Dec. 31, according to the median estimate of 14 analysts interviewed after the People’s Bank of China said on June 19 it will allow greater “flexibility.” The central bank yesterday ruled out “large changes” in the exchange rate and said it will prevent “excessive” moves.

Gains may be limited because the yuan already has strengthened 16.5 percent against the euro this year, eroding earnings for Chinese exporters in the European Union, the nation’s largest market. U.S. Senator Charles Schumer said lawmakers will push ahead with proposals for trade sanctions until they are convinced the advance is fast enough to allow fair competition.

“The yuan’s appreciation against the dollar may be limited over the next six months after the Chinese currency gained significantly against the euro,” said Ma Jun, a Hong Kong-based economist for Deutsche Bank AG, who predicts a gain of 1.9 percent. U.S. politicians can only “declare this a partial victory,” he added.

09:26 Monday 21 June, 2010

China’s signal of an end to the yuan’s fixed rate to the dollar may accelerate a shift toward domestic demand as the prime driver of growth as President Hu Jintao seeks to strengthen household incomes.

The People’s Bank of China two days ago indicated it’s abandoning the 6.83 yuan peg to the dollar adopted during the global crisis to shield exporters. The central bank said while there’s no basis for “large scale” moves in the currency, the exchange rate will be allowed increased “flexibility.”

A stronger yuan will boost the purchasing power of China’s households that have helped propel imports to a record level, and companies from Orient Paper Inc. to Air China Ltd. that purchase goods from overseas. The lift adds to trends already under way that are stoking wages, as workers demand higher paychecks from employers including Honda Motor Co.

“Over a longer time, today’s announcement opens the door for increased yuan appreciation that will help adjust China’s economy towards a consumption-driven economy,” said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong, who is a former researcher for China’s State Council, or Cabinet, and used to work at the International Monetary Fund.

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