forex

Want to buy RUB/CNY directly? May soon be a possibility, the Russian central bank has told Chinese ambassador Li Hui. Xinhua reports a statement of intent from deputy head, Victor Melnikov, to the effect that Bank Rossii is willing to co-operate with China to effect a direct currency exchange between rouble and yuan.

Both countries are keen to deepen “financial co-ordination and mutual investment”, according to state-run media Xinhua. Dr Melnikov noted the economic and strategic significance of a direct exchange between the two currencies; the Chinese ambassador echoed these sentiments, and was keen to support Sino-Russian co-operation in economic, energy and science projects.

South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering expanding its small holdings of gold to diversify its dollar-heavy portfolio.

Such a move could prove significant to the international gold market as Seoul currently only holds about 14 tonnes of the lustrous metal, equal to just 0.2 per cent of its $290bn reserves at current prices. By contrast, Italy and France each hold just under 2,500 tonnes of gold, amounting to more than 65 per cent of their reserves. Read more

From ft.com:

Speculation that Japanese authorities had intervened in the foreign exchange market to weaken the yen drove the currency sharply lower against the dollar. The dollar initially jumped 1.3 per cent to Y85.38 in reaction to market talk that the Bank of Japan had re-entered the market to sell yen and buy dollars. Read more

Excerpted from Gillian Tett, ft.com:

Back in 1985, when the deal was first struck to strengthen the yen, many American observers initially considered it a success. For in the late 1980s, the currency moved towards the Y150 level, where it stayed for several years. Read more

Whether prompted by inflation or politics, the yuan continues to strengthen, today at its highest level against the dollar since 1993. Seen in context, the strengthening is small – it’s the little squiggle on the far right of the chart, right. Compared to the currency’s ‘real’ value – according to the US – of USD1:RMB4-5, the shift is hard to spot.

But we have now seen five days of appreciation in a row, and the judicious appreciation of the Chinese currency makes good headlines, breaking records along the way. As Alan points out, it is likely to be just enough to deflect criticism at the G20. The chart below shows the daily midpoint set by Safe, the forex regulator, against the tolerance band of the original peg. Read more

Alan Beattie

Yowkers. Interesting timing for Japan to go back into the FX markets and sell the yen for the first time in six years. On Wednesday the US Congress cranks up its China currency campaign again, this time the House as well as the Senate coming up with a bill allowing the US to block Chinese imports on grounds of currency misalignment.

As I wrote before, it’s not clear which way this development cuts. Does it make it easier to confront China because another G7 country has been forced to deal with the effects of Chinese currency intervention, or does it make it harder to argue that China should stop intervening when Beijing can point at Tokyo and say “them too”? Read more

Proposals to wean eastern Europe off the euro may be misguided.

Plans are afoot to foster local currency wholesale funding: by giving banks local currency credit, the theory goes, they will be able to pass local currency loans on to consumers. Doing this would reduce FX risks for homeowners, who earn in local currencies but often pay back debts in the euro or swiss franc. Read more

It’s as if the depegging never happened: the latest exchange rate set by China places the value of the yuan squarely within its original trading bounds.

On June 18, when the yuan was still pegged, it was trading at 6.8275 per dollar, with a 0.5 per cent tolerance each side (blue lines). Since then, the daily midpoint, published by foreign exchange regulator Safe, has generally valued the currency very slightly stronger than its original band. Not today. Read more

An unscheduled statement from the Bank of Japan governor, though short, speaks volumes about worries over the strength of the yen. The currency broke a 15-year high of 85 to the dollar yesterday, which will add to recovery fears for the export-dependent economy.

Whenever the yen is strong, theories of currency intervention abound. It is thought likely the central bank would introduce further easing before the ministry of finance intervened to sell yen. The statement certainly tells us the BoJ is on the case: Read more

Another day, another hint from Chinese regulators about the future opening up of the country’s capital account. The latest statement from Safe today said that it was considering introducing new foreign exchange instruments, as well as containing a pledge to push forward with selective capital account reforms.

There was no information about what these new products might be – market participants say that FX options are likely to be the next new development.

The hints about new openings in the foreign exchange market are partly directed at an overseas audience where there are already grumblings about the slow pace of change in the exchange rate since the initial fanfare (see chart). As Mark Williams at Capital Economics pointed out today in a note entitled ‘Return of the Peg’, the renminbi barely moved at all against the US dollar during July. Indeed, “the renminbi has actually weakened in trade-weighted terms since the reform was announced”. Read more