China Yuan Strengthens to New Highth against USD Hurts Exports

2014-01-02 13:14 China Daily Web Editor: qindexing from http://www.ecns.cn/business/2014/01-02/95196.shtml

The People's Bank of China guided the Yuan to a new record high against the United States dollar on Tuesday, leaving the currency 3.06 percent higher for 2013.

The daily reference rate was set 55 basis points higher at 6.0969 per dollar. It was the 41st record for the Chinese currency in 2013, a year of increased capital inflows seeking higher returns.

Chart from http://www.bloomberg.com/quote/USDCNY:CUR/chart

Markets in China were closed on Wednesday for the New Year holiday.

The Yuan’s strength will continue in 2014, analysts said, as the US is in no hurry to tighten credit by driving up interest rates.

Beijing kept its monetary policy tight in 2013, with the authorities seeking to deleverage the world's second-biggest economy, which has become less responsive to investment stimulus.

In the meantime, developed countries - especially the US - kept interest rates low to spur growth. Analysts said that disparity in policies helped attract funds into China, strengthening the Yuan.

In November, China reported its widest trade surplus in almost five years. The surplus rose to $33.8 billion in November from $31.1 billion the previous month.

Exports jumped 12.7 percent, compared with October's 5.6 percent growth. Imports rose a more modest 5.3 percent.

Although December trade figure haven't yet been released, but Huatai Securities Co Ltd offered an estimate on Tuesday of a surplus of 31 billion Yuan ($5.1 billion).

Speculative funds, or hot money, in the guise of normal trade contributed to the surplus in November, said Zhou Hao, an economist with Australia and New Zealand Bank Group Ltd. He said that figures on industrial activity for the month didn't correspond with the reported jump in overseas shipments.

Economists expect the Yuan to continue getting stronger in 2014, with the PBOC having few options to stop it. The central bank is in a tight spot at the moment, as there will be negative consequences whichever way it guides the currency.

A higher exchange rate helps keep domestic liquidity tight by blocking fund inflows, but it hurts exports.

Tighter monetary policies in the US would curtail fund inflows to China and push down the Yuan, but the US Federal Reserve Board seems in no hurry to lift US interest rates.

Because of the Rate issue, Twothousand products prices will be raised soon. To see our prices, please login in from here: https://www.twothousand.com/customer/account/login/