Chinese Yuan Appreciates On Wider Trade Balance

Click here for PDF
[B]Chinese Yuan Appreciates On Wider Trade Balance[/B]
Appreciating during the session, the Chinese yuan was boosted by speculation that Chinese officials will be more flexible when it comes to the currently rigid exchange rate regime. Against the US dollar, the Chinese yuan gained to 7.5723 in the overnight session while advancing to 15.2812 against the British pound. Supportive of the advance was news that China?s trade surplus had widened to the second highest on record, surging 67 percent against figures a year ago. According to the General Administration of Customs today, the surplus widened to $24.4 billion compared to $14.6 billion this time last year. Exports jumped at the fastest pace in five months by 34.2 percent as imports gained 26.9 percent. Notably, oil imports additionally saw a gain of 39 percent, a record high. The figure will more than add to growing tensions with policy makers in the US Congress, calling for more flexibility and further legislation in order to curb the effects of a fixed currency. Subsequently, many in the market are already expecting an appreciation of 6.2 percent over the next 12 months.
[B]All Eyes Turn To China Consumer Prices, As Producer Prices Slow[/B]
Surprising analysts and the market, producer prices rose the smallest in almost 14 months as metal prices didn?t support as high of a move for the month of July. According to the National Bureau of Statistics, prices at the producer level rose 2.4 percent in the month from a year ago, following a gain of 2.5 percent in the previous month. Incidentally, it was the third straight month, and lends to the possibility that consumer prices may not be as lofty as some forecast. Current expectations run counter to the theory as estimates are looking for record increases in consumer prices of 4.6 percent for the month. Should prices rise to the that level, market participants may be expecting another rate increase as soon as next week.
[B]Money Supply Accelerates To One Year High[/B]
Growth in money supply accelerated at the fastest pace in a year as loose lending practices and improved trade flows helped to boost the overall number. The M2 component advanced at an alarming 18.5 percent for the month of July compared to last year?s figures according to the People?s Bank of China today. Incidentally, the figure beat consensus estimates of 17 percent, and lends to further speculation that increases in the band that restrict the Chinese yuan will have to be widened. In this case an appreciating currency will help to alleviate inflationary pressures as prices continue to rise. In addition, sentiment is expecting more interest rate increases in the near term along with numerous other inventive solutions by the country?s central bank in order to curb liquidity.
[B]Economic Growth Accelerates In Singapore
[/B]Singapore?s economy expanded at the fastest pace in two years as a growing financial services sector helped to boost construction and real estate development. For the second quarter, gross domestic product expanded at an annualized 14.4 percent, jumping over revised figures of 8.8 percent in the first quarter. Incidentally, the figures come in line with positive expectations following upgrades in second half growth by Prime Minister Lee Hsien Loong earlier this week.

[B]Written by Richard Lee, Currency Strategist[/B]