The Yuan Can Move in Both Directions

One of the biggest issues on the mind of organizations sourcing from low cost regions is how the dollar and euro will hold up, relative to the Yuan and other Asian currencies in the coming year. Many believe that it's only a matter of time before the Yuan strengthens considerably relative to the dollar and euro. The impact of currency movements is a topic that I've written about at Spend Matters in the past (scroll down for post). But this morning, I came a cross a contrarian's perspective that argued the Yuan might weaken in the coming months, relative to the dollar (which would be a boon for companies with heavy investments in China sourcing).

According to the article, "China's yuan might fall 2.4% by year-end due to a slowdown in economic growth." The Yuan, "which strengthened to 8.0023 to the dollar on Monday in Shanghai, might weaken to 8.20 by December 31 ... Tuesday, China's National Foreign Exchange Center set the central parity rate at 8.0110 to the US dollar." Why? An economist quoted in the article expects "expansion in the world's fastest growing economy might cool to about 7% this year, from 9.9% in 2005 and a double-digit growth in 2004 and 2003." In addition, "Foreign direct investment in China, which exceeded $60 billion in each of the past 2 years, might reverse as company earnings drop."

Jason Busch

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