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Thursday, May 05, 2005

Gambling On China's Currency

The FT are reporting that feelings that China may be about to have a controlled float on the are still running high. Indeed in recent days "Speculators have been active buyers of non-deliverable forward (NDF) contracts in the renminbi in recent weeks as speculation of a widening of the currency’s trading band has mounted."

The interesting thing is that the discount on one-year NDFs has been steady at 4,750 points, which suggests a coming revaluation of 5.7 per cent. All of which makes my best guess of 5% (made in a post on Afoe earlier in the week) look not bad at all.

Earlier in the week Andy Xie had a piece at the Morgan Stanley GEF which was pretty much to the point, and additionally I reproduce below a part of my own Afoe post:

Currency traders around the globe lazily staring into their screens must have found themselves transfixed last Friday when the flatline indicating the value of the Chinese yuan (or renminbi if you prefer) suddenly jumped to life. And so it was that during a brief 20 minute interval the yuan surged to a level of 8.270 to the dollar from the hypnotic and seemingly eternal value of 8.276. Now 6 thousandths of a dollar isn’t really a very big deal, but it is the sheer fact that it happened that is causing all the fuss.

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