Published On: Wed, Oct 31st, 2012

Chinese Yuan Reaches 19 Year High

Some data indicates that China’s economy is performing better than expected. After a brief manufacturing slump, the globe’s second-biggest economy shows signs of growth in investments and exports. A private survey reported on Wednesday shows that the temporary slump in China may not have been as severe difficult as investors had originally believed.

With the stronger data out of China, other Asian currencies gained during the week. The South Korean won grew this week after the release of economic information from China.  It rose by 0.6 percent to reach 1,097.03 per United States dollar. This marks a 13-month for the South Korean won.

Many Asian currencies also posted gains due to the much-awaited intervention by the Bank of Japan. Japan’s central bank is expected to loosen their monetary policy at the upcoming meeting this week. If this policy is enacted, it will be the second time that the Bank of Japan has intervened in the last two months. In response, the Japanese yen has dropped drastically against a basket of currencies over the last week. On Friday, the yen retreated 0.8 percent versus the greenback. This is the first time that the yen has weakened for two consecutive weeks since March of this year.
At the same time, the Chinese yuan rose 0.08 percent to reach 6.2489 against the greenback. During the day on Friday, it hit a 19-year high of 6.2380 against the United States dollar.

Taiwanese Dollar Drops

The New Taiwan dollar had its first week of decline in three weeks. Some analysts have speculated that the Taiwan Central Bank sold off the New Taiwan dollar as it reached its five-month high. If dropped 0.1 percent to reach NT$29.20. One week ago, Taiwan’s currency was at NT$29.286. At one point this week, the currency had strengthened to NT$29.20. Earlier in the month, the Taiwanese dollar touched NT$29.142 which was its strongest exchange rate since May 2 of this year.

According to one trader, Taiwan has managed to keep its currency from strengthening too high by intervening. Rumors have circulated that the central bank of Taiwan has intervened at the end of most trading days to keep the currency from advancing.

Asian Markets Closed for Holidays

On Friday, markets in Singapore, Indonesia, Malaysia and the Philippines were closed for public holidays. Bond and currency markets were shut in India while equities were still being traded. For the week through Thursday, the Philippine peso gained 0.5 percent to 41.208.  The Indonesian rupiah dropped 0.1 percent to reach 9,605 while the Indian rupee gained 0.5 percent to reach 53.575. At the same time, the Malaysian ringgit rose 0.35 percent for the week to reach 3.0430.

In Thailand, the baht dropped 0.1 percent to reach 30.75 versus the United States dollar. In New Zealand, the kiwi gained 0.8 percent to reach $0.8229 versus the greenback.

Euro Falls for the Week

Over the last week, the euro dropped against the United States dollar. This retreat erased a third of its gains for the month. The drop came as reports of weak business confidence in Germany and a record unemployment rate in Spain reached the market. After three years of time spent mired in a debt crisis, the European Union is finding it difficult to shake off the sluggish tendrils of the recession.

Recent data also showed that services and manufacturing in the European Union fell more than economists had expected. At the same time, some economists are predicting that the unemployment rate will show an increase in the United States for the month of October. This report is going to be released next week by the United States Department of Labor. Overall, the euro fell 0.7 percent versus the United States dollar to a rate of $1.2938. After gains earlier in the month, Europe’s currency has now only increased by 0.6 percent overall for October. Against the Japanese yen, the euro dropped 0.2 percent to 103.04 yen. Over the last month, the euro has risen a total of 2.8 percent versus the yen.

Indian Foreign Exchange Reserves Up

According to data, foreign exchange reserves in India increased from $359.4 million to $295.23 billion by October 19. For the week ending on October 12, Indian foreign exchange reserves had dropped to $294.87 billion. The largest component of foreign reserves, foreign currency assets, gained by 351.3 million to reach a total of $260.37 billion. The FCA had originally dropped by $150.1 million to $260.02 billion in the preceding week.

According to the Reserve Bank of India, some of the changes in its foreign currency reserves are due to the appreciation or depreciation of non-United States currencies. As these currencies change in value, India’s foreign currency changes due to it being reported in United States dollars. At the same time, gold reserves in the nation managed to remain the same for the week ending on October 12 at 28.13 billion. In the week that ended on September 28, gold increased by $1.89 billion.

Australian Reserves Grow

Foreign-currency holdings at the Reserve Bank of Australia have increased by $863 million over the last two months. In the second quarter, the reserves had grown by a monthly average of just $49 million. In other years, the Reserve Bank of Australia had attempted to offset the rise by buying up their local currency. This month, it has refrained from doing this in order to prevent upward pressure on the Australian dollar.

Despite this attempt at managing the currency, the Reserve Bank of Australia has not announced any official changes to their policies. The change to foreign currency reserves, however, decries their attempt to weaken the Australian dollar. If the Aussie increases, it detracts from the profits made by exporters and miners in the nation. Since late June, the Australian dollar has managed to remain at parity with the United States dollar. This parity is impressive since during the same time, Australia suffered from an end to their mining boom and a decrease in commodity points. The Reserve Bank of Australia also enacted an interest rate cut of 1.5 percentage points since November.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.