Beijing, Hong Kong double size of currency swaps

by lexie Tue Nov 22, 2011 5:19 pm

Nov. 21, 2011, 11:59 p.m. EST

Beijing, Hong Kong double size of currency swaps

-- China, Hong Kong double size of currency swap to CNY400 billion.

-- The agreement is part of Beijing's plan to expand the offshore yuan pool.

-- Move comes as the growth in yuan deposits in Hong Kong has slowed.

-- Banks are unlikely to tap yuan funds through the Hong Kong Monetary Authority, analysts said.

(Updates with HKMA statement in the lead and sixth paragraphs, analyst comment in the ninth, 10th and 11th paragraphs, and adds background throughout)

SHANGHAI (MarketWatch) -- China and Hong Kong said Tuesday they have doubled the value of a currency swap to CNY400 billion ($63 billion) as Beijing seeks to expand the pool of yuan traded offshore.

China is using Hong Kong as a test market for a freely traded yuan. Hong Kong is the largest repository for the yuan outside of the mainland, with CNY622 billion in deposits as of Sept. 30.

The expanded swap agreement allows the Hong Kong Monetary Authority, the territory's de facto central bank, to tap a yuan pool from the People's Bank of China, the country's central bank. It comes as the growth in yuan deposits in Hong Kong has slowed in recent months, amid waning risk appetite among global investors and a less bullish outlook for the yuan.

The new agreement will expire Nov. 22, 2014, but may be extended if both sides consent. The agreement replaces an earlier one for CNY200 billion, or HKD227 billion, that was scheduled to expire Jan. 20.

The PBOC said the new deal will facilitate trade and investment and support the development of the offshore yuan market.

HKMA Chief Executive Norman Chan said in a statement the new agreement "is crucial in helping us to provide liquidity, when necessary, to maintain the stability of the offshore renminbi market in Hong Kong."

In October 2010, the HKMA drew CNY20 billion under the original agreement to meet local companies' funding needs, according to a 21st Century Business Herald report, citing unnamed sources. The report came after HKMA said Hong Kong companies had exhausted their full-year quota of CNY8 billion to settle trades with mainland companies.

Analysts said banks are unlikely to tap yuan funds through the HKMA via the swap agreement because HKMA criteria is strict and the lending terms are unattractive.

However, the expansion of the currency swap "could allow the HKMA to diversify more of its reserves into yuan assets by investing in the onshore yuan bond market," Credit Agricole senior strategist Frances Cheung said.

Onshore yuan bonds are attractive to HKMA and other central banks because they offer significantly higher yields than their offshore counterparts, and a means to diversify holdings into currencies other than the U.S. dollar, she said.

Since the end of 2008, Beijing has reached currency-swap deals with a dozen countries in Asia, Europe and South America as part of efforts to promote the yuan as an international currency.

http://www.marketwatch.com/story/beijing-hong-kong-double-size-of-currency-swaps-2011-11-21

by lexie Tue Nov 22, 2011 5:51 pm

Yen May Rally Beyond 70 Per Dollar in 2012, JPMorgan Chase’s Sasaki Says
Nov 22, 2011 12:45 PM CT .

The yen may rally through 70 per dollar next year as global financial stability in the second half damps investor appetite for the greenback, according to JPMorgan Chase & Co.

Japan’s currency appreciated to 75.35 on Oct. 31, its highest level since World War II. The yen will strengthen further in the last six months of 2012 as the global economy stabilizes, driving investors to shun the dollar in favor of Japan’s currency, strategists led by Tohru Sasaki, head of Japan rates and foreign-exchange research at JPMorgan in Tokyo, wrote in a report today.

“Risk sentiment will improve towards the second half of 2012 as the global economy recovers and the European fiscal problem moves towards a resolution,” Sasaki wrote. “We expect broad U.S. dollar weakness with an improvement in investors’ sentiment. In this setting, dollar-yen is likely to trend lower, led by U.S. dollar weakness.”

The currency pair will trade in a range in the first half of the year as a recession in Europe and sluggish growth elsewhere drive investors to buy the safest assets. The yen will reach 72 per dollar during the year and may appreciate through 70, Sasaki wrote. He couldn’t immediately be reached for comment when contacted by telephone.

The yen dropped 0.1 percent to 76.96 per dollar at 1:40 New York time. It has appreciated 5.3 percent so far this year in the best performance against the greenback among the most-traded currencies tracked by Bloomberg.

Japan Intervention
Investors won’t be deterred by the prospect of Bank of Japan intervention, Sasaki wrote. While the central bank has sold yen in the foreign-exchange market to weaken the currency four times in the past 14 months, the action will continue to be sporadic and won’t take a permanent nature, according to Sasaki.

“Although we cannot rule out the possibility of yen-selling intervention when the pace of decline in dollar-yen is rapid, any intervention would probably be of only unilateral, one-off nature,” he wrote. “Therefore, it is unlikely to have a lasting impact on the underlying trend in yen.”

The Swiss National Bank imposed a ceiling on the franc at 1.20 per euro in September to curb the currency’s appreciation. The Bank of Japan likely won’t engage in such action, according to Sasaki.

http://www.bloomberg.com/news/2011-11-22/yen-may-rally-beyond-70-per-dollar-in-2012-jpmorgan-chase-s-sasaki-says.html#

by 1alaskan Tue Nov 22, 2011 9:16 pm

China would love for the YUAN to become the worlds reserve currency and they are trying to accomplish that as the US just sits around and does nothing as the USD value is falling.

Beijing, Hong Kong double size of currency swaps

Beijing, Hong Kong double size of currency swaps

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