China Revaluation Q.

[TheWolf]

In an announcement on state television, the government said that from Friday the yuan would be allowed to trade in a tight range of 0.3% against a basket of foreign currencies.

Does anyone know what the currencies are?

[tdeketel]

Originally Posted by TheWolf

Does anyone know what the currencies are?

No, I don't. It's not in the CBs' press release (http://www.pbc.gov.cn/english/detail...ol=6400&id=542).

[mishak]

The educated guess:
Chinese currency basket should mainly consist of USD, JPY, EUR

[tdeketel]

Originally Posted by mishak

The educated guess:
Chinese currency basket should mainly consist of USD, JPY, EUR

That's a very likely scenario mishak. But what will the effect be of this revaluation?

Let me quote today's issue of Black Swan Capital's "Currency Currents" to give you an idea of a possible scenario:

"Let’s say the basket is made up of equal parts $, euro, yen, for example. What if the dollar continues to appreciate against the euro and yen—after all, the fundamentals in the US haven’t changed and the yield differential favoring the dollar is set to grow? In this scenario, it would mean the relative value of the yuan declines against the dollar. Now wouldn’t that be interesting! That would make Chinese goods appear even cheaper on the world market. WalMart would be happy, but we don’t imagine Capitol Hill would be."

Interesting effect for the Chinese, isn't it .

Regards.

[mishak]

The last thing China would do is to hurt themselves
It is common knowledge that Chinese are more cunning then American. Now look - how can Snow oppose this "partial devaluation"

[RealFX]

"It is common knowledge that Chinese are more cunning then American."

Hmmm.. LoL

Wonder if the Chinese are even allowed read these reports?

[mahras]

No one may know what the basket it as it would mean some govt. and funds can actually influence the yuan.

It probably consists of: US dollar, british sterling, the euro, japanese yen, and swiss franc as primary basket. Possibly the Aussie Dollar, Korean Won, Singaporean dollar, and others as secondary.

[novice]

Impact on the majors as I see it:

1 Capital flowing out of the USD due to less Asian (not just China but Japan, Korea, Malaysia etc) central bank buying of the USD and US treasuries.

2 Capital flowing into Asian currencies seeking capital appreciation.

3 Capital flowing into other major currencies as Asian central banks rebalance their reserves away from the USD and into a basket of currencies.

Net effect should be?

USD/JPY to fall

EUR/JPY to fall

AUD/JPY to fall

AUD/USD to rise

AUD/EUR to rise

EUR/USD to rise