Chinese Yuan weakened

Chinese Yuan (CNY) weakened since June 2012 against Singapore dollar. The currency rate Singapore dollar (SGD) against CNY was 4.9281 on 1 June 2012 (i.e. 1 Singapore dollar can exchange for 4.9281 Chinese Yuan) During last trade on Friday, 10 August 2012, Chinese Yuan weakened 3.65% to 5.1065. This means that investment in Chinese Yuan lost value in Singapore dollar term during this period.

What are possible reasons for weakening of Chinese Yuan?

1. China export growth decelerated in July from 11.3% in June to 1% in July. This resulted in less demand for Chinese Yuan by foreign countries to pay for China export.

2. “Foreign direct investment into China declined 6.9% in June 2012 from a year earlier. For the first six months of the year, foreign investment declined 3% from a year earlier, the Commerce Ministry of China said.” (Source: BBC news 17 July 2012) This also resulted in less demand of Chinese Yuan to invest in the country.

3. Analysts and commentators were expecting China to reduce discount rate further. The last rate cut was on 5 July 2012 when People’s Bank of China cut its key interest rate to boost economic growth. Demand for Chinese Yuan by foreigners for investment in financial and real assets in China will decline too.

All three reasons above are associated with the declining economic climate in China for this year. Singapore is too affected by slow global economic growth. Its forecasted GDP growth rate is narrowed to between 1.5 to 2.5% for 2012. Will Chinese Yuan strengthen against Singapore dollar under this environment? Will Monetary Authority of Singapore reverse its gradual appreciation of Singapore in the October review? We are in uncertain time and currency movement can be hard to predicted.

Footnotes:
SGD/CNY rates:
29 April 2012           5.0928
1 June 2012             4.9281
10 August 2012      5.1065

Peak: 23 Feb 2009 at 4.4264
Bottom: 18 July 2011 at 5.3395
(data collated since 2005)

Copyright © 2012, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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