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					Smooth market with soaring RMB
Report of the interbank FX market in January 2008

Abstract In January 2008, the interbank FX market ran smoothly. Compared with December 2007, FX forward turnover rose by nearly 20%; FX swaps turnover increased by 15%; FX pairs trading was up 25%; and FX deposits volume rose by 10%. In January, the RMB kept appreciating against the USD and HKD, depreciated against the JPY, remained stable against the EUR, and went up against the GBP. As of end-January the central parity of the RMB against the USD had appreciated by 1.66% from end-2007, and up 15.19% from the central parity on the day of FX regime reform in 2005.

RMB kept climbing in spot FX market In January 2008, the central parity of the USD headed lower amid two-way movements. The central parity of the USD started this month at 7.2996 yuan per dollar and closed at 7.1853, down 1,193 bps from end-2007. The difference between the peak and the bottom of the central parity was 1,143 bps. At end-January, the RMB had appreciated by 1.66% from the central parity at end-2007, showing an acceleration of revaluation. In January the concluding price of USD/RMB showed a narrower range, with the daily moving range of 92 bps. The central parity of the HKD tossed downward. It opened this month at 0.9353 yuan per HK dollar and ended at 0.9210, down 154 bps from end-2007. This indicated an appreciation of the RMB against the HKD by 1.67% from end-2007. The central parity of the JPY rose and consolidated. It started this month at 6.5306 yuan per 100 yen and ended at 6.7560, up 3,496 bps from end-2007. The RMB lost 5.17% against the JPY from end-2007. The central parity of the EUR moved violently and went down. It opened January at 10.6611 yuan per Euro and saw a month-close of 10.6612, down 57 bps from end-2007. Compared to end-2007, the RMB appreciated by 0.05% against the EUR. The central parity of the GBP headed lower amid fluctuations. The central parity

opened this month at 14.4904 and settled at 14.2707, down 3,100 bps month-on-month. The RMB gained 2.17% against the GBP as compared to end-2007. Under the OTC transaction mode, the top three member banks in the list of accumulated turnover were China CITIC Bank, ICBC and Bank of China. The top three buyers were China CITIC Bank, Bank of China and ICBC. The top three sellers were China CITIC Bank, ICBC and China Merchants Bank. Under the automatic price-matching transaction mode, the top three member banks in the list of accumulated turnover were the Bank of Tokyo-Mitsubishi UFJ Shanghai Branch, Standard Chartered Bank Shanghai Branch and China Development Bank. The top three buyers were Standard Chartered Bank Shanghai Branch, HSBC (China) and Shenzhen Development Bank. The top three sellers were the Bank of Tokyo-Mitsubishi UFJ Shanghai Branch, China Development Bank and Standard Chartered Bank Shanghai Branch. As of end-January, the interbank spot RMB/FX market had 265 members, and market makers amounted to 22, namely 13 local banks and nine foreign-funded ones. FX forward turnover rose by nearly 20% month-on-month In January 2008, the RMB/FX forward market sealed 394 deals worth US$3.482 billion. Four varieties were traded during the month. They were: 384 USD deals valued at US$3.475 billion, or over 99% of the total forward turnover; 3 HKD deals, 5 JPY deals and 2 EUR deals. Regarding maturities, the two varieties of 9M-1Y USD and 3M-6M USD registered the biggest trading volumes of US$2.028 billion and US$546 million, respectively. As of end-January, the interbank RMB/FX forward market had 81 members. Discount narrowed for the weighted concluding price of 9M-1Y USD/RMB forward. Opening January at 6.7784, the weighted price went south and closed the month at 6.7602, down 223 bps from end-2007. FX swaps turnover increased 15% month-on-month In January, the market witnessed 2,449 deals valued at US$36.759 billion. Three swaps were traded during the month. They were: 2,445 USD/RMB deals valued at US$36.754 billion, which was more than 99% of the total swaps; three HKD/RMB deals valued at HK$4 million and one 1-million EUR/RMB deal. Transactions focused on swaps below 3 months (including O/N) and 9M-1Y swaps. As of end-January, the interbank RMB/ FX swap market had 79 members. Discount narrowed for the weighted concluding price of 9M-1Y spot/forward USD/RMB swaps. Its weighted price went down amid fluctuations, similar to that of 9M-1Y USD forward. In January, the weighted concluding price of 9M-1Y

spot/forward USD/RMB swaps started January at 6.8152 and closed it at 6.7544, down 236 bps from end-2007. FX pairs turnover was up 25% month-on-month The interbank FX pairs market in January 2008 concluded 1,923 deals valued at US$7.37 billion, down 19.13% from January 2007. Among the eight FX pairs, USD/HKD and EUR/USD were the most active, their turnover accounting for 38.92% and 36.25% of the total pairs trading. In the interbank FX pairs market, HSBC (Hong Kong) remained the leader in the January list of market-making volumes. Next were Citibank (China) and ING (Amsterdam). Their trading volumes were US$2.981 billion, US$1.866 billion and US$821 million, respectively. As of end-January, the interbank FX pairs market had 16 market-making banks and 53 member banks, viz. 34 local financial institutions and 19 foreign-funded ones. FX deposits turnover expanded 10% month-on-month In January 2008, financial institutions handled, through the CFETS broking system, 11 interbank FX deposit deals with a turnover of US$252 million. Transactions focused on maturities within 2 months. As of end-January, 141 institutions had signed agreements with the CFETS for its FX deposits broking services. Brief analysis The major factors that influence the RMB’s continuous appreciation against the USD are as follows: The PBC uses various policy tools for macro economic regulation. On January 25, 2008, the PBC decided to raise the reserve requirement by 0.5 percentage points to 15%. This is the first hike of reserve requirement in 2008. Import-export and trade surplus maintained a robust rising momentum. From January through December 2007, China’s imports and exports totaled US$2.1738 trillion, up 23.5% year-on-year. Among that, exports were US$1.2180 trillion, up 25.7% year-on-year; imports were US$955.82 billion, up 20.8% year-on-year; the surplus stood at US$262.20 billion, up 47.7% year-on-year. In December 2007, China’s imports and exports recorded a total of US$206.15 billion, up 23.4% year-on-year. Among that, the exports were US$114.42 billion, up 21.7% year-on-year; the imports were US$91.73 billion, up 25.7% year-on-year; and the trade surplus was US$22.69 billion, slightly lower than the November surplus of US$26.28 billion. Utilized FDI expanded. In the whole year of 2007, 37,888 new foreign-funded

enterprises were set up after approval, down 8.69% year-on-year; utilized FDI in China amounted to US$82.658 billion, up 13.8% year-on-year. In December 2007, 3,469 new foreign-funded enterprises were set up after approval, down 22.32% year-on-year; utilized FDI in China amounted to US$20.989 billion, soaring by 139.66% year-on-year. The differential continued to widen between 1Y RMB Shibor and 1Y USD Libor. In 2008, the largest differential was 1.84% (January 23) and the smallest was 0.395% (January 2). On January 31, the differential was 1.84%, which has been widening from the end-2007 figure of 0.28%. In January 2008, the USD was generally weak and the USDX hit a record low. The USDX opened January at 98.5166 and closed the month at 97.735, showing a USD depreciation by 1.10% from end-2007 when the USDX stood at 98.8222.

Wang Xianxing, Research Department, China Foreign Exchange Trade System & Natinal Interbank Funding Center


				
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posted:12/21/2009
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