Central bank China stimulates exporting industry

05-26-2009 15:34

In the past two months the Chinese Yuan showed the largest drop, caused by China’s central bank reducing the reference exchange rate in order to support the exporting industry.
Yesterday the Japanese Yen dropped versus the US Dollar and against the Euro. In the meantime the political tension in Asia increased, due to the nuclear test by North Korea. This resulted in a less wanted Japanese Yen, while global risk aversion also affected the Yen.

Reduced reference exchange rate controls appreciation

The People’s Bank of China lowered the reference exchange rate of the Chinese Yuan by 0.07% versus the latest rate, in order to reach the US Dollar level of 6.8285. This fixed foreign exchange rate is used by China to control the pace of the appreciation of the Yuan, which supports Chinese enterprises to compete worldwide.

Geithner discusses trading relations with China

China will receive Timothy Geithner, US Treasury Secretary, on the first of June. This visit aims on reviewing the trading bonds and he will possibly urge on the swift appreciation of the Chinese Yuan. Henry Paulson was the last US Treasury Secretary that visited China in the beginning of December 2008.

Yuan’s exchange rate appreciation

According to analysts the recent cut of the reference rate change implicates that the Chinese authorities do not intent to soar the exchange rate of the Yuan and that they will prevent it to appreciate. The Chinese economy suffered the slowest increase of the Gross Domestic Product (GDP) in nearly a decade, while China continues to focus on economic growth.

Korean nuclear test real threat

Traders and investors doubted the security of the Asian region, which resulted in selling the Australian Dollar and Japanese Yen. For the first time in three years the Democratic People’s Republic of Korea tested its nuclear bomb yesterday. The test was successful and threatens the adjacent countries and poses a risk for the stability of the economic and worldwide political bonds.

Yen’s appreciation decreases its safe-haven status

Traders preferred the US Dollar and other currencies instead of the Japanese Yen yesterday despite its ‘safe-haven’ status and although risk aversion dominated the market. Some analysts linked today’s decrease with the frustration among the Chinese administration concerning the major appreciation of the Yen en general in the past few months.