Skip to main content

Yuan, Inflation and Expectations

The big news is that China will be going off the peg to the U.S. dollar.  Studies indicate that the Chinese currency is between 25% and 40% undervalued in dollar terms.  Of course this doesn’t help since the implication is that the undervaluation of the Yuan against the Euro was even more extreme!  

China is Canada’s third largest trading partner, overtaking Japan in 2008, to take on about 3% of all Canadian trade (62% of all trade is with the U.S.).  So what is the impact of a re-valuation of the Yuan on Canada’s trade position?  First, a revaluation of the Yuan (lets say the authorities allow a 5% appreciation) is almost meaningless since the Canadian dollar over the past 5 years has gained approximately 30% against the U.S. dollar, and by the same amount against a pegged Yuan.

It will affect Canada’s producer price index (PPI), but its unclear how much of this production cost increase will pass on to the consumers.  Overall, the link between China and Canada is too inconsequential to mean anything to the Canadian economy.  The pressures on the Canadian dollar are driven by the energy complex (and the S&P 500).  

Aside from that very little economic news out for Canada this week.  Inflation is the big number, and will feed the flame for additional increase in interest rates.  Although the bank of Canada has been sounding the alarm on global economic conditions:

  • 21 Jun 2010 15:29 BST *DJ BOC: Overall Level Of Risk To Financial Stability Has Increased
  • 21 Jun 2010 15:29 BST *DJ BOC: Risk Of Another Period Of Severe Stress In Financial Markets, Global Banking Sector
  • 21 Jun 2010 15:29 BST *DJ BOC: Steps Taken In Europe In May Fall Short Of Lasting Solution To Fiscal Woes
  • 21 Jun 2010 15:29 BST *DJ BOC: Countries Need Realistic Plans To Achieve Sustainable Fiscal Positions
  • 21 Jun 2010 15:29 BST *DJ BOC: Europe Fiscal Woes A Risk To Timely Resolution Of Global Imbalances
  • 21 Jun 2010 15:29 BST *DJ BOC: More Flexible Exchange Key In Resolving Global Imbalances
  • 21 Jun 2010 15:29 BST *DJ BOC: Sees "Transitional Challenges" Form Implementation Of Bank Capital Rules
  • 21 Jun 2010 15:29 BST *DJ BOC: Downside Risk To Canada Financial System From Global Downturn Has Risen
OK someone is clearly not staying on message.  But then as I have often indicated, Canada’s “good-ish” economic health allows the authorities to be a bit more honest than in Europe or South of the border.  

The jury is out on what will happen over the next few months.  

CAD at parity (consistently by Q4/10)
GDP growth for 2010 3.2% -- implication is that Q3 & Q4 will be very weak.

Comments

Post a Comment

Popular posts from this blog

Spray painting Taylor Swift G650 aircraft (updated)

 First, a bit of paint will not harm anyone.  These climate activities are going to learn two things in the next few days:  (1) Trespassing at an airport is a felony almost anywhere in the world.  That means criminal prosecution.   (2) removing paint from an aircraft is expensive.   So these climate activists are about to find out the reach of the British criminal system and it will not be pleasant, the UK has very strict laws about that, I would be surprised if cleaning the aircraft of all the paint will cost less than $100,000.     I am sure that when they planned (premeditation) this little show they had a very valid logic to doing this.  Tonight, they are probably realizing the depth of their troubles.   I understand that in the UK it's a minimum one-year jail sentence.    Also, good luck travelling with a criminal trespass charge against you.  I am relatively certain that the airline industry will ...
Post a Comment
Read more

Janet Yellen from China supporter to Hawk...

There is rarely serious news in the world these days, it seems that most newspapers are filled with headlines and little else, and then Ms Yellen went to China.  Secretary Yellen has long been known in the Biden administration as the voice of moderation when dealing with China, yet as her trip which concluded yesterday a hawk was born:  She warned the Chinese against dumping goods in the United States.    fighting words! The American administration is very concerned about the lack of Chinese domestic consumption.   Even before the COVID-19 epidemic, there were already the beginning signs of a slowdown, automobile sales were off.   China is facing domestic deflation (a clear sign of collapsing demand) China imports few consumer goods, they import raw materials and intermediary goods.   It seems that the American administration is concerned that the Chinese administration will dump consumer goods abroad to keep its manufacturing machinery ...
Post a Comment
Read more

Farm; Half year performance

 People appear to be genuinely curious. 2024 has been a record first half for the farm.  The addition of high tunnels has greatly impacted our revenues.   While we expected Q1 profits to be higher, it really was the second quarter that produced the goods.  The terrible weather has greatly impacted the production of high-end vegetables. Energy costs are now very stable and have become a fixed variable especially now that our bio digesters are fully dialled in.   Replacing some of our pre-dryer equipment was covered under warranty, and the new equipment is far better at dealing with gas moisture, and much better steel!   Our diesel costs are what they are! Our biologist and ecologist devised a new planting plan for our high tunnels that greatly reduced pests, especially slugs.   We have seen a 90% decline in sluggs this year, resulting in better yields.   It seems that several plants act as natural repelants and if planted c...
Post a Comment
Read more