Thursday July 21, 2005 - 12:58:34 GMT
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Foreign Exchange Analytics - www.fxa.com
China Reval: Second Blush
China's new FX regime is indeed a crawling peg. The PBOC will take a rate at end of each day and make that the central parity rate for the following day (around which the dollar anyway will be allowed to fluctuate ±0.3%. The fluctuation band can change as officials see fit, but this appears unlikely for the foreseeable future. It is also conceivable that the yuan moves to the upper limit of the band in consecutive (or non-consecutive) days and will accumulate to more than 2% reval that is the simply the first move. So it is 2% + day one (no more than 0.3%) + day two + day n.
There is also nothing in the new regime that assures yuan only moves up. It could weaken, though this is not our call for the foreseeable future.
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