A couple of important milestones in the Chinese recovery were passed overnight. Bloomie notes today:
The yuan strengthened beyond 6.21 per dollar for the first time in 19 years after the central bank raised the currency’s reference rate and as a bailout deal for Cyprus spurred demand for emerging-market assets.
The People’s Bank of China increased the daily fixing by percent to 6.2692 per dollar today, the strongest level since Jan. 15. The currencies of Asia’s developing economies appreciated today as euro-area finance ministers approved a bailout for Cyprus. China will maintain a “reasonable” level of investment as it targets a pickup in domestic demand, the China Securities Journal reported today, citing National Development and Reform Commission Vice Chairman Zhu Zhixin. “A stronger exchange rate could help China tame inflationary pressures and boost domestic consumption by lowering prices of imports,” said Daniel Chan, a Hong Kong- based executive vice president at Glory Sky Global Markets Ltd.
Too true and it will prevent the kind of pro-cyclical cycle that blew China up in 2011/12 as it raised interest rates to combat capital flows that were driving growth only to suck in more capital with higher interest rates!
However, interest rate markets are also stirring with swaps also passing an important inflexion point in the past few days, moving into positive territory for the first time in eighteen months:
