[COLOR="Green"]UBS: yuan finally rose[/COLOR]
The People’s Bank of China finally ended 2-year period of yuan’s peg to the greenback. As a result, the currency gained 0.42% rising to 6.7976 per dollar as of 5:30 p.m. in Hong Kong. The yuan reference rate was kept at 6.8275 to prevent short-term speculative capital moves and excessive fluctuations. Chinese currency is now let to diverge by 0.5% from the official rate making the rate more flexible.
According to Chinese central bank, yuan’s growth will help to restrain inflation and turn investment from export-manufacturing to service industries. In addition, such actions of the bank will decrease critical attitude of the USA and G-20 that accused China of using undervalued currency to stimulate exports.
Strategists at UBS AG expect yuan to add nearly 4% this year and 5% next year. The 14 analysts surveyed yesterday by Bloomberg claim that yuan is likely to advance by 1.5% against the dollar to 6.7 by the end of 2010.
Philippine central bank Governor Amando Tetangco commented that the change in monetary policy reflects the recovery of China’s economy that may have a very positive impact on the entire Asian region attracting more foreign capital.
[COLOR="green"]Citigroup: euro zone will fight the crisis[/COLOR]
Economists at Citigroup Inc. claim that the European Union’s bailout program is the evidence that European leaders are really trying to stop the debt crisis and restore confidence in euro. The specialists are quite optimistic and believe that in the end the euro zone will be able to solve its financial problems.
According to Citigroup, Europe’s governments made a right step deciding to release the information of banks’ stress tests citing the fact that similar measures were very helpful in the United States in 2008.
[COLOR="green"]Citigroup: euro will lose 9% in case of Greece’s default[/COLOR]
Economists at Citigroup Inc. expect that the single currency will lose approximately 9% versus the greenback in case of the Greece’s default. Such assumption is made on the basis of quanto credit swaps analysis with the help of which it’s possible to bet on currency volatility and sovereign debt risk.
According to the specialists, investors may use quanto swaps to bet that euro will fall. They can benefit from buying insurance on euro zone’s government debt in dollars and selling protection on the same bonds in the European currency.
The European authorities are regarding the possibility of forbidding default swaps as they are thought to strengthen the fiscal crisis. Citigroup analysts project that if France doesn’t manage to pay back investors euro may contract by 28|%, if Spain – by 20%, Italy – by 17% and if Germany – by 25 %.
[COLOR="green"]Morgan Stanley: yuan's growth will cause decline in US Treasuries[/COLOR]
Economists at Morgan Stanley believe that China will reduce pace of purchasing US dollars for its international reserves. This is likely to happen as the termination of yuan’s peg to the greenback mean that the positive sentiment about the world’s economic recovery is strengthening.
The specialists claim that while the revaluation’s short-term bearish impact on Treasuries may be restrained by the positive influence it has on risky assets, in the long-term the amount of dollars possessed by China will go down and so the country would use less dollars to transfer in American Treasuries.
[COLOR="green"]Robert Mundell: more flexible yuan will harm world's economy[/COLOR]
Nobel Prize winner Robert Mundell is sure that China’s decision to make its exchange-rate more flexible ending the period of protection from the crisis will harm both its and the world’s economy.
The economist believes that yuan’s connection to the greenback was acting at the main indicator of financial stability in the region. Mundell claims that exporting nations of Asia used to orient their monetary policy on this currency pair. Chinese and American currencies belong to two of their biggest customers. He underlined that China could deal with the balance-of-payments surplus and foreign-exchange reserves’ advance even in terms of a fixed exchange rate.
[COLOR="green"]Bank of Montreal: CAD rose to 5-week high versus USD[/COLOR]
Canadian currency rose to the 5-week maximum versus the greenback. The demand for loonie as the asset linked to growth was helped by the confidence in the world’s economic rebound that increased after China allowed yuan to appreciate. In addition Canada finds itself in the centre of attention due to the G-20 and the G-8 summits.
Traders at Bank of Montreal in Toronto claim that China’s actions resulted in the revival of risk appetite. The commodities gained with crude oil, Canada’s largest export, rising to 6-week maximum at $78.87 a barrel. Gold for immediate delivery set today new absolute maximum at $1,265.30 an ounce and copper added 1.8% to $6,548.5 a metric ton.
[COLOR="green"]HSBC: yuan can decline to 6.80 per dollar by the end of 2010[/COLOR]
Analysts at HSBC Holdings Plc claim that yuan’s likely to be rather volatile and we’ll observe periods not only of yuan’s appreciation but also of Chinese currency’s depreciation versus the greenback.
The specialists forecast that yuan can decline to 6.80 per dollar by the end of 2010. HSBC believes that the shift in China’s monetary policy was made due to the political reasons in order to ease the tension with the United States.
HSBC economists are looking forward to yuan’s peg to several currencies that may happen earlier than they originally expected.
[COLOR="green"]On-line analytics from FBS always is available on: http://www.fbs.com/analytics/news_markets[/COLOR]
