When will China's currency start to climb against the dollar?

12/10/2009 10:30 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

When will China stop pegging its currency to the U.S. dollar and let the renminbi appreciate?

 The futures market now projects a 2.6% gain for the renminbi within the next twelve months. Some economists think that figure is low. Deutsche Bank chief China economist Ma Jun expects a 5% gain for the renminbi against the dollar in 2010 with appreciation beginning as early as March or April, Bloomberg reported.

What will decide if those projections are correct?

Watch China’s exports. If they rebound as quickly as economists now project, the Chinese currency could start to climb again in 2010. The sooner China’s exports to the rest of the world show solid growth again, the sooner the Beijing government will allow its currency to climb.

Figures for November exports, due out tomorrow, will give a useful signal on the speed of export growth. Exports climbed 1.4% in November, according to a survey of 26 economists by Bloomberg. That would mark the first increase in exports in 13 months.

Economists are expecting a big jump in Chinese exports in the first quarter of 2010. Macquarie Securities and the Royal Bank of Scotland are projecting 20% growth in exports in that period.

China has kept its currency pegged to the dollar at 6.83 renminbi to the buck since July 2008 in order to give Chinese exports a boost from a favorable exchange rate during the global economic slowdown. The renminbi had appreciated by 21% in the three years prior to the restoration of the peg that had been scrapped in 2005.

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