Iran takes step toward euro-based oil bourse but some are skeptical

Section:

By Jake Lee
The Standard, Hong Kong
Saturday, May 6, 2006

http://www.thestandard.com.hk/news_detail.asp?
pp_cat=5&art_id=18159&sid=7833061&con_type=1

The yuan may rally next week through eight to the US dollar,
according to forwards contracts in Hong Kong, a level unseen since
the Communist Party Central Committee first documented plans in 1993
to move to a floating exchange rate.

Traders in Hong Kong increased bets the yuan will climb in Shanghai
as it catches up with gains in Asian currencies during the past
week's five-day holiday in China.

The Singapore dollar and Korean won reached their highest since the
1997 Asian financial crisis as Group of Seven nations said the
region, and particularly China, should rely less on weak currencies
to propel growth.

"With the dollar sliding that's going to put more pressure on the
yuan to gain when it reopens next week," Jan Lambregts, head of
research at Rabobank Groep, said in an interview in Singapore. "We
could drop below the eight level very soon."

One-week dollar-yuan contracts in Hong Kong showed traders are
betting on a 0.3 percent gain to 7.9915.

One-year contracts put the yuan at 7.6805. Forwards are agreements
in which assets are bought and sold at current prices for future
delivery.

Finance ministers and central bankers from the G-7 said April 21 in
Washington that it is "critical" Asian nations let their currencies
rise to reduce global trade imbalances that threaten worldwide
economic growth. The call came the day after US President George W
Bush, meeting with Chinese President Hu Jintao, said he wanted "more
appreciation" in the yuan.

The US trade deficit with China has reached a record for five
straight years, as export demand helped China's first- quarter gross
domestic product grow 10.2 percent from a year earlier, the fastest
of the world's 20 largest economies. Pressure on the yuan will also
build before a US Treasury report set for release next week that may
say China manipulates its currency. The department will likely issue
its latest review of the exchange-rate policies of US trading
partners in the week, spokesman Tony Fratto said last Monday in
Washington.

"The yuan is a political issue and the Treasury report will be
closely watched," Irene Cheung, a strategist at ABN Amro Bank in
Singapore, said Friday.

"There's a lot of anticipation, and pressure on the yuan to go
higher."

In the last review in November, the Treasury refrained from calling
China a currency manipulator, citing the end of the peg as a sign of
efforts by the government to introduce changes.

Since the peg was replaced with a system of managing the exchange
rate against a basket of currencies, the yuan has risen 1.2 percent
versus the dollar, compared with an 8.9 percent leap in the Korean
won and 5.3 percent jump in the Singapore dollar.

The yuan's biggest intraday gain of 0.15 percent is half the maximum
movement China on July 21 said it would allow each day. It was also
barely changed in the week after the G-7's statement, and before the
central bank said April 27 that it would raise the benchmark lending
rate to cool economic growth.

"They've kept the exchange rate stable, with very little
appreciation recently, and that's been puzzling us, but now it's
become clear," Qing Wang, a senior currency strategist at Bank of
America Corp in Hong Kong, said on the day of the rate rise.
China "had been preparing for the next move in tightening rates
instead of allowing the currency to appreciate."

Allowing the yuan to rise will further help slow growth by making
Chinese products more expensive abroad and reducing the amount of
domestic currency the central bank has to pump into the economy.

"China's showed that it won't cave in to outside pressure by
allowing further appreciation straight after the G-7," said
Lambregts at Rabobank. "Now we're a little distance away from that,
we could see more moves."

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