Investors should buy into the Chinese Yuan via non-deliverable forwards in anticipation of faster currency appreciation after data showed strong economic growth and inflation, two banks said on Friday.
Goldman Sachs recommended investors go short dollar/yuan via 2-year NDFs as the government was likely to let the yuan rise at a faster clip to help bring down inflation, Hong Liang, the bank's China economist, said in a research note.
"We expect the authorities to become bolder in using the currency tool to cool down domestic inflation pressures, and maintain our forecast of 9 percent appreciation in the yuan versus the dollar over 12-months' time," she said. The yuan rose in one-year NDFs to 7.17 per dollar on Friday from 7.23 late on Thursday, factoring in a 5.5 percent appreciation from the spot rate of 7.5630.China's annual economic growth surged to an 11-« year high of 11.9 percent in the second quarter while inflation accelerated to 4.4 percent in June, the government said on Thursday, cementing expectations for fresh tightening measures.
Standard Chartered Bank said it had revised its forecast on the pace of yuan's appreciation to an annual rate of 5 percent for the second half of 2007 from a previous expectation of 4 percent. It cited signs of increased comfort among China policy makers for greater currency flexibility.