Forex Investment and Currency Trading

We have had a massive unwind of short US dollar / long RMB positions from the hedge fund community given the slower pace of the RMB appreciation from the People’s Bank of China (PBOC).  The positions have been exited as a result of the general US dollar rally versus the EUR and GBP over the past week which has prompted a US dollar rally against most currencies and the fact the PBOC slowed its appreciation to only 0.50-0.75% in the month of April.  For your guide, we averaged 1.5% appreciation from November 2007 through March 2008.
Overall, this should be a [...]

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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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Expect no change in policy rates in Q2 so long as inflation eases this month. Instead, there will likely be two 50 bp increases in the reserve ratio in Q2 to control liquidity growth resulting from FX intervention. The PBOC will rely more on administrative-based, rather than market-based, measures to target inflation.
After a busy 07H2, the PBOC is expected to largely sit on the sidelines in Q2 and Q3. True, inflation pressures are rising, but the central bank is limited in its ability to curb food price inflation. The PBOC may also take comfort from a stabilizing trade surplus. The [...]

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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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