Forex Investment and Currency Trading

1Q08 GDP growth was stronger than expected, but at 10.6% yoy was a slowdown from the 11.2% performance in 4Q07. The moderation was attributed to continued macro-tightening policy and emerging signs of weaker global demand. Understandably, net exports declined significantly due to weaker external demand, faster CNY appreciation and robust import growth. Having said that, economic momentum remained strong, supported by the brisk fixed asset investment growth at 24.6% yoy and steady domestic
consumption performance at 12.5% yoy. In addition, March industrial production rebounded to 17.8% yoy from 15.4% in February, though there are signs that this could be peaking in [...]

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10% CNY appreciation expected in 2008. The authorities are increasingly targeting gains against the Euro as well as the USD.
The CNY has appreciated 4% since the start of the year, its largest three-month gain since revaluation in 2005. The annualized pace of appreciation is likewise running around 15%. Rising inflation pressures are a popularly cited reason for the recently large gains. The authorities have also talked of targeting CNY gains against a trade-weighted basket, rather than just the USD. The Euro area is currently China’s most important trading partner, yet the EUR has risen 1% against the CNY this year. [...]

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The CNY should appreciate by 10% pace in 2008. But a one-off revaluation looks ever less likely. The authorities are turning increasingly cautious in the face of slower export growth and a stabilizing trade surplus. Inflation is not yet a large enough concern to justify a significantly faster pace of appreciation.
China’s economy is showing signs of cooling. It’s early days, and the economy may yet reaccelerate. But policy tightening and weaker global demand are starting to weigh on growth. China has not decoupled. Exports slowed convincingly in Q4. However, domestic demand is relatively robust as underscored by the strength of [...]

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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 [...]

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