Forex Investment and Currency Trading

The sharp USD rebound last week, due to the Fed’s efforts to prevent the failure of a large securities firm and a less-thanexpected interest rate cut, led to a halt in CNY appreciation against a trade weighted basket of currencies. As the return of a calmer market sentiment coincided with the conclusion of China’s 11th National People’s Congress, the Chinese government let the CNY resume its relatively faster appreciation against the USD. As expressed by Premier Wen Jiabao, China is seriously concerned about USD weakness and potential implications for China’s domestic market, and is closely watching US monetary policy in this period of financial market turmoil. We believe that as long as USD weakness continues in an orderly manner, the CNY will likely continue its relatively faster pace of ascent against the USD in the coming quarter.

However, if a sudden USD drop indicates a sharp loss of confidence in the global financial market and economy, the Chinese government may take a more cautious approach and slow down the pace of CNY adjustment. For now, the USD/CNY rate of 6.8 by end June is still the story.