Chinese currency pegged to USD

[Timmy]

No, its not 'news' ... but I think this guy is right on the money:

''I still think,'' he said, ''that the single most destabilising decision of the last 10 years was the Chinese peg.''

Weak Dollar? Not So Much in China from the NY Times

Same article in the SMH

Don't know how the resolution is going to come about, or when.

 

[Timmy]

Allowing some adjustment is better than nothing, but a float would be best.

Chinese Yuan Forwards Forecast A Much Needed Dollar Peg Adjustment

 

[Timmy]

Escalation of commitment, confirmation bias, selective quoting, justification, and just plain pig-headedness. Look around. All rampant.

Let's try to offset all that a little.
Here is an article arguing that the next adjustment in the Yuan will be down against the USD! Totally contrary to my view.

Should I try to obfuscate and denigrate? Or maybe try to learn something? Great article.

"I think the next 18 months will see major ructions in the financial markets. The consequences of a double-dip back into recession next year require some lateral thinking. If the carry trade unwind results in a turbo-charged dollar, any collapse in the China economic bubble will be doubly destructive to commodity prices. A surging dollar, coupled with China moving into sustained trade deficit through 2010, could prompt the Chinese authorities to acquiesce to US pressure for a more flexible exchange rate. But why does no-one expect a yuan devaluation?"
Source: Albert Edwards Calls For The Next Black Swan: Expect Yuan Devaluation Following Deep 2010 Downturn

 

[Temjin]

Escalation of commitment, confirmation bias, selective quoting, justification, and just plain pig-headedness. Look around. All rampant.

Let's try to offset all that a little.
Here is an article arguing that the next adjustment in the Yuan will be down against the USD! Totally contrary to my view.

Should I try to obfuscate and denigrate? Or maybe try to learn something? Great article.

"I think the next 18 months will see major ructions in the financial markets. The consequences of a double-dip back into recession next year require some lateral thinking. If the carry trade unwind results in a turbo-charged dollar, any collapse in the China economic bubble will be doubly destructive to commodity prices. A surging dollar, coupled with China moving into sustained trade deficit through 2010, could prompt the Chinese authorities to acquiesce to US pressure for a more flexible exchange rate. But why does no-one expect a yuan devaluation?"
Source: Albert Edwards Calls For The Next Black Swan: Expect Yuan Devaluation Following Deep 2010 Downturn

That is something I actually subscribe to at this moment. The massive carry trade with selling USD and buy practically anything else will eventually rewind sooner or later. It's a heavily crowded trade and bearish sentiment on USD is all time high. Both quantitatively and subjectively.

Yuan will most likely to devalue from the USD perspective.

 

[Timmy]

The massive carry trade with selling USD and buy practically anything else will eventually rewind sooner or later. It's a heavily crowded trade and bearish sentiment on USD is all time high. Both quantitatively and subjectively.

I agree with you that it is a crowded trade, I think where I may differ is that I see a snap-back in the USD happening later rather than sooner. There will be rallies, and very big, nasty ones (good for traders though ), but I don't see a sustained change in trend until just before the signs of interest rates in the US are about to reverse become evident (so 6 months away, give or take).

Yuan will most likely to devalue from the USD perspective.

It is a probably a failure in imagination on my part, but I cannot see this happening. Of course, if the global and US recovery falters sharply (which I don't expect, and that's not to say the path will be without setbacks and justified pessimism) then all bets are off I suppose.

Hope this makes sense?

 

[Whiskers]

Probably not the best time to unpeg or change value atm. Let the global recovery stabalise some more.

But I'm sure the Chinese are well aware of the power they have in that regard and will play it to their best advantage. May be the next major factor to re-shape the world economy dynamics.

"A devaluation in the renminbi relative to the dollar will likely short-circuit all the millions of FX algos that expect a perpetual peg if not outright Chinese currency appreciation." ... from Timmys last link.

 

[Timmy]

Chief economist of Goldman's, in a Feb. 15 Bloomberg report:

"I have a strong opinion that they're close to moving the exchange rate,"

http://www.bloomberg.com/apps/news?pid=20601087&sid=awBSw.3x_gAo&pos=7

More:

A 5 per cent hike in the renminbi's value would not only address those concerns but would help slow the economy and tackle inflation fears, says O'Neill, who reckons China's economy is currently growing between 12 and 14 per cent. His estimates for growth this year, at 11.4 per cent, are significantly above the World Bank's 9 per cent estimate.

http://ftalphaville.ft.com/blog/2010/02/15/148881/jim-oneills-big-call/

Easy call to say that this 'should' be done; much, much harder to put yer nuts on line and say when ... kudos Mr. O'Neill.

 

[doctorj]

Easy call to say that this 'should' be done; much, much harder to put yer nuts on line and say when ... kudos Mr. O'Neill.

Massive call, but then Goldman have never backed down from a headline. Remember what they said back in 2005 about $100 oil?

So what's the play? Short Walmart, long BHP?

 

[Timmy]

So what's the play? Short Walmart, long BHP?

It would have to be a positive development for commodity exporters etc. ... Australia & Brazil spring immediately to mind. A positive for global growth too ...?

 

[Timmy]

Re: Investment/Finance/Economics breaking news

This is big news, effects happening now.

China to ease yuan-dollar peg; any weakening to be gradual
http://www.marketwatch.com/story/china-loosens-yuans-peg-to-dollar-reports-2010-06-20

Yuan Unshackled May Strengthen China's Shift to Domestic Demand for Growth
http://www.bloomberg.com/news/2010-...na-s-shift-to-domestic-demand-for-growth.html

Australian Stock Futures Rise; S&P Futures Advance After Yuan Policy Shift
http://www.bloomberg.com/news/2010-...-futures-advance-after-yuan-policy-shift.html

 

[Trembling Hand]

Re: Investment/Finance/Economics breaking news

This is big news, effects happening now.

I don't think so. we only follow the dow ??

 

[Timmy]

Re: Investment/Finance/Economics breaking news

I don't think so. we only follow the dow ??

Oh yeah ... my bad.

LOL

 

[Trembling Hand]

Re: Investment/Finance/Economics breaking news

Oh yeah ... my bad.

LOL

China Stocks don't like the announcement. Everything that was up on the news has now taken a bit of a hit on the news that China's punters didn't like the news. :

 

[skc]

Re: Investment/Finance/Economics breaking news

China Stocks don't like the announcement. Everything that was up on the news has now taken a bit of a hit on the news that China's punters didn't like the news. :

It appears that they like the news now afterall?? What a confusing day.

 

[UBIQUITOUS]

Any thoughts on the effect on the AUD:USD - short, medium and long?

 

[prawn_86]

Any thoughts on the effect on the AUD:USD - short, medium and long?

We saw a gap up over the weekend which is very rare, however it looks as though it will drift off and fill the gap. If they do actually change the peg (which they didnt they just said they might) it will increase risk appetite causing the AUD to gain

 

[Trembling Hand]

We saw a gap up over the weekend which is very rare, however it looks as though it will drift off and fill the gap. If they do actually change the peg (which they didnt they just said they might) it will increase risk appetite causing the AUD to gain

Yep Prawn agree. This gap Monday has a nasty habit of filling by Wed. Though its probably more of a game changer than last time it happened, which was that dud EURO 1 trill bailout fund.

As far as medium to long term its clearly a positive for AUD and actually any risk asset. Pile in boys its all safe (we just need whiskers to disagree with the above and we will be fine )

 

[skc]

We saw a gap up over the weekend which is very rare, however it looks as though it will drift off and fill the gap. If they do actually change the peg (which they didnt they just said they might) it will increase risk appetite causing the AUD to gain

When Chinese says "We might" it most usually means "We will".

That is one advantage of the communist system... amongst its many faults.

Take the opposite - when Kevin Rudd said "We will" it means "we might" or "we will try, waste some money and abandon it later ourselves or until we lose the election".

 

[MRC & Co]

Yeh, saw the potential for that, but didn't think it would be so swift! Luckily the damage was extremelly limited! This is going to be a BIG wk I believe, lots of volatility! US data should disappoint and confirm their recovery is hitting the skids, UK has its emergency budget and G20 meeting should see a lot of push and pull amongst the various political and economic powers that be! Without a showing of political unity, this Chinese news may simply provide some excellent fills for shorts over the coming days to run right up and into October.

 

[prawn_86]

Yep Prawn agree. This gap Monday has a nasty habit of filling by Wed. Though its probably more of a game changer than last time it happened, which was that dud EURO 1 trill bailout fund.

Yeh i put an order in on my personal account when i got to work. Short term looking to fill the gap, got out with 30 pips profit (about 1:1RR) as it dropped off suddenly when they said they didnt actually do any adjustment. Took that move instead of holding a bit longer than i originally anticipated.