USD/CNY Weekly Fundamental Analysis May 7 – 11, 2012, Forecast

Introduction:  For years, other countries have been asking China to let the yuan, also called then renminbi, to float more freely on the currency market. It appears that China is doing that now, with an announcement that the yuan will be allowed to float more freely against the US dollar.

China announced that it will allow the yuan to float a little more freely against the US dollar, allowing the currency to move one per cent to either side of the US dollar currency peg. The yuan will not be a truly free floating currency as a result of the new policy, but it will have a little more flexibility.

For years, Western countries, especially the United States, have charged that the Chinese undervalue their currency, keeping it artificially low against the US dollar. This allows for an edge in exports, as a weaker yuan makes goods cheaper to purchase by consumers in other countries. Many expect that if Chinese policymakers were to ever let the yuan freely float, it would appreciate quite quickly.

Weekly Analysis and Recommendation:

The USD/CNY ended the week at 6.2928

Business conditions for Chinese manufacturers improved further in April although overall activity still declined, according to the final reading of a monthly survey by HSBC released Wednesday.

Chinese manufacturing expanded for a fifth straight month in April, prompting optimism about a moderate improvement in economic activity.

The state-affiliated China Federation of Logistics and Purchasing said on Tuesday its purchasing managers’ index, or PMI, rose 0.2 percentage points to 53.3 per cent in April, up from March’s 53.1 and February’s 51.0. A reading above 50 signifies expansion. China’s economic growth declined to 8.9 per cent in the final quarter of last year after Beijing increased interest rates and tightened other controls to cool inflation. Chinese leaders reversed course in December and promised more bank lending to help companies cope with a slump in global demand, but changes have been gradual.

Major Economic Events for the past week actual v. forecast

 

Economic Highlights of the coming week that affect the AUD,JPY,NZD and USD

Upcoming Government Bond Auctions

Date  Time  Country 

May 08  09:15  Austria 

May 08  09:30  Belgium 

May 08  14:30  UK 

May 08  15:30  Italy  

May 08  17:00  US 

May 09  09:10  Sweden 

May 09  09:30  Germany 

May 09  09:30  Swiss 

May 09  09:30  UK 

May 09  14:30  Sweden 

May 09  15:30  Italy  

May 09  17:00  US 

May 10  15:00  US 

May 10  17:00  US 

May 11  09:10  Italy   BOT auction

May 11  10:00  Belgium