The frequency of my reports on the Chinese Yuan is admittedly much higher than it used to be. Why? Call it disbelief. More than two months have passed since China revalued its currency, and after a rapid 1% appreciation, the RMB has actually fallen back. Today, it stands only .5% higher against the Dollar compared to June 18. On a trade-weighted basis, it is actually 2.3% lower. What is going on?!

It can foremost be attributed to a disconnect between Chinese words and Chinese action.

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The yen declined on Wednesday as the AUD surged on faster-than-anticipated growth in Australia’s economy and a moderate rebound in China’s manufacturing sector. The JPY extended losses slightly after the Japanese ruling party powerbroker Ichiro Ozawa, challenging Prime Minister Naoto Kan in a party leadership vote, said in a policy statement he would enforce steps including intervention if the yen experienced a sharp increase.

The AUD increased 1.2 percent to 75.95 yen and the greenback edged up 0.3 percent to 84.47 yen In addition to the most rapid growth in three years for the Australian second-quarter GDP, talk of USD buying by Japanese investors at levels near 84.00 yen also helped push the yen to a lower point.

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EURGBP

While both the EUR and GBP are in search  of another clean close higher against the USD, it is always interesting to look at the cross to see which currency is trading stronger. The EUR, after trading lower since mid July, is finally starting to break north again. Tuesday’s price action pushed the EUR above trend line Resistance and it was followed by yesterday’s close higher to the 50 day moving average. If the EUR closes above the 100 day MA , currently near an 84 handle then the EUR may rally hard against the GBP, especially if the GBP fails to break north against the USD. Howe Read more…

The recovery that emerging markets (their economies and financial markets) have staged since the lows of 2008 is impressive. In most corners of the financial markets, all of the losses have been erased, and securities/currencies are trading only slightly below there pre-credit crisis levels. Even compared to twelve months ago, in 2009, the performance of emerging market currencies holds up well. In the year-to-date, however, most of these currencies have appreciated only slightly, thanks to a particularly weak month of August.

The MSCI emerging market stock index is currently down 2.5% since the start of the year.

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