Tuesday July 26, 2005 - 11:41:59 GMT
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Black Swan Capital - www.blackswantrading.com
Buck rallies on Chinese "no"--again!
“What we have here is a failure to communicate. Some men you just can’t reach, so you get what we had here last week which is the way he wants it. Well, he gets it. And I don’t like it any more than you men.”
Cool Hand Luke
The dollar got a nice boost during the Asian and European sessions after the news the central bank said if speculators expect another increase in the value of the yuan “in the foreseeable future they are wrong.” It’s looking more and more like a band aide move by the Chinese to dampen calls for action emanating from Capital Hill. Or maybe we simply need a better definition of the word “foreseeable.”
The Chinese central bank knows quite well that at this stage in the cycle, it can ill afford more hot money rushing into China. And if speculators expect another yuan revaluation soon, that is exactly what would happen.
China is slowing. The administrative controls placed on key segments of the economy designed to produce the slowdown seem to be working. Many now believe China may be close to engineering the soft economic landing they have been attempting for a while. Should massive amounts of hot money flow back into China, they will be back into the same game of trying to cool what they consider dangerous speculation—and they are probably right.
It’s a delicate balancing act: The need to lift capital controls, shift focus to the domestic side of the ledger to better balance the economy, deal with a financial bubble, and try to maintain stability and employment for a massive workforce. While at the same time mollify your largest customer—or at least its politicians. Dynamic change and stability are mutually exclusive—but the Chinese in charge of the show don’t seem to believe that.
So, what else is a responsible communist central banker to do—one lacking the proper transparency training and believing in full employment at a personal level—other than to just say no!
Black Swan Capital
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