Chinese Renminbi Hits 17-Year High vs Dollar, Appreciation Accelerating

Chinese Renminbi Hits 17-Year High vs Dollar, Appreciation Accelerating

Despite repeated rhetoric from Beijing that the renminbi’s rise would be slow and orderly, this snowball appears to be gaining real momentum, as evidenced its past month’s performance versus the buck.

Beijing is now admitting that curbing inflation is their top priority:

China’s yuan traded near a 17-year high after the central bank reiterated its top priority is to curb the fastest inflation in 32 months.

The People’s Bank of China said yesterday controlling price increases is its main goal, even after a manufacturing survey indicated that economic growth may slow. Bank reserve requirements have no “absolute ceiling,” the central bank said in its first-quarter monetary policy report published on its website.

“Even if China’s growth slows down a bit, the economy is still expanding,” said Patrick Cheng, a foreign-exchange analyst at Haitong International Securities Co. in Hong Kong. “The yuan is supported by the expectation that China will continue its inflation fight and let the currency appreciate.”

Source: Bloomberg

It’s been a managed one-way climb for the renminbi in dollar terms for some time now.  Like a well-chaperoned junior prom, you wonder if the real fun is going to break out in the after party!

Chinese Yuan vs Dollar Chart 2006 2011

Source: Google Finance

Reported inflation is running at about 5% or higher, and when I was traveling through Asia last month, inflation was definitely on the top of everyone’s mind.  I’d have been run out of the continent, or at least over to the Moscow side, had I mentioned deflation. 🙂

As Jim Rogers mentioned in my chat with him, Singapore has already started letting their currency rise to combat inflation (and they’ve been doing so pretty aggressively).  He expects that China will need to follow suit, because it’d be far better to sacrifice some growth in exchange for getting inflation under control (read why here).