Tuesday, January 12, 2010

China SWF Official Says US Dollar Has Bottomed, China Has A Say On The US Dollar; There Is No need For Gold

The Globe and Mail Beijing office reports today that an official with China's $300B sovereign wealth fund says that the US dollar has bottomed. He also said that China now has a say in the exchange rate of the U.S. dollar.

It may have bottomed, but those statements could mark a new low for the US greenback.

Furthermore, Mr. Peng expects the yen should fall further and says that there is no need for China to acquire gold.

"There is limited room for the U.S. dollar exchange rate to fall further but I'm not expecting a good outlook for the Japanese yen....but the yen carry trade is expected to rise this year," said Peng Junming, an official within the China Investment Corp's asset allocation and strategic research department at the Chinese Academy of Social Sciences.

The U.S. dollar rose more than half a yen close to 92.40 yen on the news then lost some ground after Mr. Peng said his comments reflect personal views.

“A U.S. government official recently said that the dollar is ours but the problem is China's. But China now has a voice in influencing the dollar's exchange rate and the interest rate on U.S. government debt,” Mr. Peng added.

“Although the dollar belongs to the U.S., China has a role to play in determining the dollar's exchange rate.”

China Has Say on the USD

China's stash of dollars also allows it to influence commodities markets, like oil which is priced in dollars.

“We can weigh down or push up the dollar exchange rate, which will have an impact on the global commodity futures market.”

No Need for Gold

His views on gold: “China should have the right attitude about investing in gold. There is no urgent need for China to increase gold buying for now, because prices are high.”

Globe and Mail: "Lou Jiwei, CIC's chairman, has been careful not to say much about how the fund invests its money. In October 2009, he said the fund was putting more money into commodities, real estate and infrastructure to hedge against medium- and long-term inflation and a fall in big currencies.
Mansoor Mohi-uddin, currency strategist at UBS in Singapore, said sovereign wealth funds are returning to prominence after losing influence during the financial crisis.
However, private sector U.S. portfolio managers have the ultimate say on the dollar, he noted.

“The portfolios of both sovereign wealth funds and central banks globally remain dwarfed by U.S. asset managers. It is the latter, as the largest holders of dollars in the world, who will continue to determine the ultimate direction of the greenback,” he said note to clients.

Interest Rates

Turning to interest rates, Mr. Peng, who previously worked in the New York office of the Chinese central bank, said he expected that both the United States and China would raise rates in the second half of the year.

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