Forex Investment and Currency Trading

Macro-economy
After six years of strong growth, China policy makers are bracing themselves for much tougher times. The economy has been hit by an external demand shock, the effects of domestic tightening in H1-2008, a commodity boom and bust, and a housing market slump and price correction. By the end of 2008, some 20mn had lost their jobs in the export sector, reportedly bringing total unemployment to around 40mn (8% of the labour force) – and rising.
Since September 2008, the government has loosened policy aggressively, cutting interest rates and freezing exchange rate appreciation (at least against the USD). A fiscal stimulus [...]

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A greater emphasis on partnership rather than confrontation Whereas previous G7 statements have seemed confrontational on the issue of exchange rates, the Communiqué of 14th February appeared to emphasise solidarity at a challenging time. We compare below the February 2009 and October 2008 Communiqué, focusing specifically on the section on exchange rates. The bolded section reflects a change from the previous Communiqué:
“In particular, we welcome China’s fiscal measures and continued commitment to move to a more flexible exchange rate, which should lead to continued appreciation of the Renminbi in effective terms and help promote more balanced growth in China and [...]

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The Chinese yuan (CNY) has been on an appreciating path since its de-pegging and revaluation on 21 July 2005. The pace of this appreciation appeared to pick up sharply in Q4-07, in line with the public change in official rhetoric to “tight” rather “prudent” economic policy. Since then, a shift by the Chinese authorities has been noticed in Q1-08, which appeared to favour managing the CNY on a trade-weighted basis rather than just against the USD. Indeed, since April, the CNY Nominal Effective Exchange Rate (NEER) has appreciated sharply, helping to curb inflationary pressures in the process. Near term, market expects to see further [...]

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USD/CNY
Current Spot Rate - 6.85

3Q2008 - 6.70
4Q2008- 6.45
1Q2009 - 6.27
2Q2009 - 6.14
3Q2009 - 6.05
4Q2009 - 6.00

Macroeconomic Trends and Prospects
China economy is expected to slow down moderately in 2Q 2008 (market consensus 10.4% yoy vs. 10.6% in 1Q 2008) “in an expected direction of macroeconomic control” (Premier Wen). The authorities have shifted rhetoric from preventing overheating to ensuring stable economic growth. In fact, there are additional signs of continued moderation of economic activities. June PMI reached a two-year low at 52, following the decline in May to 53.3. The 2Q 2008 entrepreneur confidence index dropped to 134.8 from 140.6 in 1Q [...]

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