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Accelerated Pace of RMB Appreciation to Favor Base Metal Prices
Sep 28,2010 14:48CST
smm insight
Source:SMM

SHANGHAI, Sep. 28 (SMM) – Recently, the central parity of RMB against the US dollar has hit several new highs, breaking the 6.7 mark for the first time since 2005.  SMM believes that China's currency will continue to appreciate against the US dollar in the coming months with amounting pressure from the US.

RMB Accelerates Appreciation Pace
According to data from China's Foreign Exchange Trading System, Chinese currency has speeded up its appreciation pace against the US dollar since September 1st due to greater pressure from the US government.  As of September 28th, the central parity of RMB advanced 1.58% to 6.7051 from 6.8126 against the US dollar, and strengthened 1.80% since the currency reform from June 21st. In addition, overseas non-deliverable forward market also exhibited strong yuan. The yuan's 12-month non-deliverable forwards were at 6.5454 per dollar on September 28th, with gains expected to 1.86%.

China's Yuan Will Keep Appreciating
The rapid appreciation of China's currency signals the initiative corrections of China's yuan under the pressure from the US recently, and China's yuan is expected to maintain the upward trend in the future. China will continue to proceed with the market-oriented process of China's currency, which will help China's foreign exchange reserves become more balanced. In addition, the rapid appreciation of China's yuan against the US dollar is also attributed to the plunging US dollar index which has fallen from 83.57 on August 24th to 79.18 on September 27th, with a drop of 5.26%. However, no matter how the US dollar moves in the future, China's yuan will keep appreciating following the progress of China's central bank's exchange rate reform. 

RMB Appreciation Boosts Base Metal Prices
If RMB continues to appreciate steadily, a similar ripple effect like that in 2005 will be triggered and impact from hot money will definitely affect base metal market. Meanwhile, the US dollar will depreciate as a result of RMB appreciation, helping prompt price surge of international commodities. It can be seen that RMB appreciation will lend dual support to drive base metal prices up, which may lead to a round of relatively strong base metal price performance.

 

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