The Chinese Government's Containment Of Inflation May Trigger A New Wave Of RMB Appreciation.

The yuan closed up against the US dollar on Tuesday (December 28th), which means that the Chinese government's determination to curb inflation may trigger a new wave of RMB appreciation.

The announcement of a rate hike on Christmas day shows that the Chinese government is holding high interest rates. inflation Determination.

In the next few days, the Yuan's remittance with the US dollar may increasingly reflect the expected acceleration of the renminbi's appreciation in the coming year.

"Exchange rate should be China's last move to control inflation," said Frances Cheung, strategist at Credit Agricole. But I think China will not mind further appreciation of the renminbi in order to control imported inflation. "

In addition, Chinese President Hu Jintao will visit the United States in mid January. According to past experience, before major political events, China will allow the renminbi to appreciate slightly, in order to defuse the criticism of China's exchange rate policy.

Last week, an informal survey of traders in China showed that many respondents expect RMB appreciation of about 6% next year and 6.25 yuan against the US dollar by the end of next year. The exchange rate will play a greater role in combating inflation.

Traders believe that the Yuan's exchange rate against the US dollar indicates that the market expects the yuan to rise by only a little over 2% in the next year, which underestimates the appreciation potential of the renminbi, leaving investors with a huge opportunity to empty the US dollar in the distant market.

A senior trader in a commercial bank in Shenzhen said: "the government seems to have passed the message that the government will be interest rate And exchange rate, to curb inflation together.

"The appreciation of the renminbi will continue to be relatively moderate, and it may increase by slightly more than 5% next year, and political factors will also have an impact from time to time."

The yuan closed against the US dollar Tuesday at 6.6248 yuan. Since the resumption of foreign exchange reform in mid June this year, the renminbi has appreciated by about 3% against the US dollar.

Traders said that in the rest of the year, RMB Against the US dollar, it may not be able to effectively break through the psychological barrier of 6.60 yuan, but after entering the new year, it may accelerate its appreciation before the summit between China and the United States.

Gerrard Katz, head of foreign exchange trading at Standard Chartered Bank in Hongkong, said: "China is leveraging all kinds of leverage to control inflation, including raising interest rates and appreciating the renminbi. We expect that the yuan will rise to 6.20 yuan against the US dollar by the end of 2011. At present, the price of RMB yuan does not reflect such a prospect, so it can wait for a long time to sell.