REPORT ON THE INTERBANK FX MARKET IN Q3 2004

REPORT ON THE INTERBANK FX MARKET IN Q3 2004

Market performance

With 66 trade sessions in the third quarter, the accumulated turnover of the four trading currencies amounted to 44.973 billion in US dollar terms. The average daily turnover stood at US$681 million, up 11.1 percent from the previous quarter and 24.8 percent year-on-year. The accumulated turnover in September reached US$17.054 billion with the average daily figure hitting US$775 million.

Compared with the previous quarter, the average daily turnover for USD, JPY and HKD increased, while that for EUR decreased. Compared with the same period of 2003, the average daily turnover went up for USD, HKD and JPY, while that for EUR dropped.

The USD moved slightly in the third quarter. The weighted average price of USD was 8.2767 at the beginning of July. It moved within a range of four bps from 8.2766 to 8.2770 and closed the quarter at 8.2766, level with the ending figure of previous quarter.

The HKD was fairly stable before it went up slightly at the end of the third quarter. The weighted average price of HKD opened the quarter at 1.0606, and at the end of the quarter it rose abruptly to a quarter-ending high of 1.0612, up five bps from end of previous quarter.

The JPY took hold after dropping in Q3. The weighted average price of JPY started the month at 7.6524. On July 12 it reached a quarterly high of 7.6686, affected by the election result in Japan. It then dropped until mid-August, when the price began to inch upward. The JPY ended the quarter at 7.4632, 1544 bps lower than the previous quarter.

The EUR fluctuated in the third quarter. Starting the quarter at 10.0789, the weighted average price of EUR had a high of 10.3026 and a low of 9.9313. It closed the quarter at 10.202, up 1999 bps from the previous quarter.

Compared with the previous quarter, FX supply increased while demand decreased, thus expanding the excess of FX supply over demand. The average daily surplus reached US$556 million, up 19.93 percent quarter-on-quarter and 18.90 percent year-on-year.

In the third quarter of 2004, financial institutions handled 34 interbank FX deposit deals: 32 deals in USD valued at US$506.60 million; one in EUR at 5 million; and one in HKD at HK$55 million. Medium and short-term deposits, mainly within one week or around one month, dominated the deposits deals. As of the end of the third quarter, 125 institutions had signed agreements with CFETS for foreign currency deposits.

Brief analysis

The macro adjustment measures continued to take effect. According to the standing conference of the State Council held in early September, China's economy is smoothly proceeding towards the country's macro adjustment objectives: lower growth of fixed asset investment, and level off the expansion of bank money credit, while the economy maintains its momentum.

Imports and exports have kept rising while remaining in surplus. In the first eight months of 2004, China's foreign trade volume went up by 38.2 percent year-on-year to reach US$722.13 billion, with an accumulated surplus of US$950 million. Exports soared in the first eight months and the rise of imports declined. In August, the trade surplus hit US$4.49 billion, the highest within this year.

FDI continued to grow. According to statistics from the Ministry of Commerce, 28,748 new foreign-invested enterprises were approved in the first eight months of the year, 11.73 percent higher year-on-year; contracted FDI reached US$93.792 billion, up 38.89 percent year-on-year; and utilized FDI hit US$43.559 billion, increasing year-on-year by 18.77 percent.

The RMB exchange rate remained stable. Chinese government sticks to its persistent and clearly defined stance about the RMB exchange rate; that is, China will perfect the RMB rate forming mechanism and maintain the basic stability of RMB at a reasonable and balanced level. The FX administration has also introduced various measures to further streamline procedures and regulate management, thus facilitating foreign trade and investment, and strengthening its management of the inflow and sale short-term funds.