China yuan appreciation accelerating

The yuan has appreciated 3.12 percent since late October, 2007 far exceeding a 2.1 percent jump on July 21, 2005, in what Shanghai dealers dubbed as a “mini-revaluation”.

Several traders now predict the yuan will climb above 7.20 to the dollar before the end of next week. Just a day earlier, they had forecast the central bank would engineer a major pause when the yuan rises near the 7.20 level.

China will announce December consumer price data next week. Official sources have told Reuters the figure will come in at 6.5 percent from a year earlier, below November’s 11-year high of 6.9 percent but not far down enough to signal inflation has clearly peaked.

China’s yuan could rise to 7.0 against the dollar by the end of March, as Beijing tries to cope with mounting inflation in an increasingly challenging environment, Bank of America said.

The high price of oil in the international market has been one of the reasons given by Chinese officials for justifying RMB appreciation. The rising prices of international raw materials, including oil, have lifted the domestic CPI level, increasing the pressure of imported inflation in China. RMB appreciation will help reduce the costs of bringing in foreign natural resources and in turn help mitigate inflation.

Cathay Financial Holding Co. and China Airlines paced gains by the Taiwan’s biggest companies on speculation they will be allowed to invest more in the world’s fastest growing economy.

The KMT’s Ma, 57, has pledged to allow direct links, to reach a peace agreement, and to ease a ban on Taiwanese companies investing more than 40 percent of their assets in China. His lead over DPP presidential candidate Frank Hsieh widened to 42 percentage points in an opinion poll after Saturday’s vote, the United Daily News reported.

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