Forex Investment and Currency Trading

USD/CNY has traded within a tight range thus far in January and it appears that the authorities prefer to maintain currency stability ahead of the week-long Lunar New Year holidays beginning January 26. The USD/CNY central parity was consistently set below 6.84 with the highest at 6.8399 on January 14. Trading activities will likely wind down as the holidays approach and the PBoC is unlikely to cut rates
further this month. With most of the December data announced, the only key data left are December CPI and 4Q GDP. While inflation is expected to decline further to 1.6% yoy, fears of sustained deflation in China will likely prove unfounded as PBOC continues to cut rates and the base inflation effect turns positive relatively early in 2009. 4Q GDP will likely affirm a significant moderation in economic activity from 3Q. Meanwhile, the authorities revised 2007 GDP to 13% from 11.9%, but did not furnish
further details. IP growth was stronger in 1H07 than in 2H07 but retail sales were weaker in 1H07 than in 2H07. However, consumer prices were significantly higher in 2H07 due to the surge in commodity prices and could have weighed on real growth performance. Without further information, the impact on 2008 headline growth remains unclear. Actual FDI fell 5.73% yoy in December, dragging down the
full year growth slightly to 23.6% from 26% in January to November 2008. Nonetheless, the full year performance was very impressive compared to 2007’s 13.6% growth. With growth slowing in 2009,
FDI growth performance will likely moderate this year, though the government’s fiscal pump priming efforts may help to limit the slowdown.