Exchange rate excitement

The RMB is tottering on the edge of 7 to the dollar, and it seems to be getting people fairly excited. While I don’t exactly know how forex markets work to everyday tourist, my parents are being quoted rates of 6 to the dollar for their upcoming trip to China. I wouldn’t really expect forward rates to be THAT factored in to your normal American bank’s exchange rate chart (Chinese banks oddly exchange money at near the median range), but obviously someone does.

How soon will 6 RMB to the dollar be a reality? Just today in my mailbox came a Goldman Sachs article predicting 12% appreciation over the next 12 months, the highest number I’ve ever seen, next to Michael Pettis’ regular predictions of a 20% one time jump. The Goldman prediction would imply an exchange rate of 6.16 to the dollar by April 1, 2009… Nomura recently raised their 2008 estimate from 8 to 9 percent, which, you know, makes sense since it already appreciated 4% in the first quarter.

My savings increased in value 300$ since Jan 1… which is just lovely.

Update: Goldman is getting the 12% from the rates on the “Non-deliverable yuan forward contract,” which are running at 11.3%. Michael Kurtz over at Bear Stearns quotes the number, and says he still expects “only” 7-8% inflation. We quoted someone in this month’s issue that said its only going to be at 6-8%, but since its already nearing 5% that seems unlikely… Kurtz just notes that now RMB appreciation is more politically acceptable, but there is already tales of massive job loss in the export sector.

January-February export growth fell to 16.8% y/y, from roughly 28% during January-October 2007. China’s former minister of labor said on the sidelines of March’s annual National People’s Congress that the country’s employment situation will be “very severe” this year. Fully three thousand factories already have reportedly shut down in China’s export-powerhouse Guangdong province thus far in 2008; and industry groups predict that at least 10% of the 60,000-70,000 Hong Kong-owned factories in the Pearl River delta will close this year.

The government doesn’t like unemployment, as unemployed Chinese tend to get very “protesty”