Oil rallies above 78 dollars on news of yuan flexibility
Tuesday, 22 June 2010
SINGAPORE, June 21 (AFP): Oil prices rallied in Asian trade Monday on expectations of higher demand from Chinese consumers after China's central bank said it would allow for a more flexible yuan.
A statement by the People's Bank of China Saturday it would "strengthen the flexibility" of the country's currency has also nudged Asian stock markets higher.
New York's main futures contract, light sweet crude for delivery in July, surged 1.01 dollars to 78.19 dollars a barrel in morning trade, while Brent North Sea crude for August advanced 1.08 dollars to 79.30 dollars.
"Oil has been handcuffed to equities for sometime," said Victor Shum, a Singapore-based analyst with global energy consultancy Purvin and Gertz.
"Both oil and Asian stock markets are reacting to news over the weekend that China is likely to become more flexible with its currency against the US dollar," he told AFP.
"What this means to Asian economies is that the buying power of the Chinese consumer will likely increase as a result of the appreciating yuan, allowing them to increase their exports to China."
Shum however said "some of this initial excitement may die down" as China has also explained that any appreciation of the yuan would be gradual.
Analysts have interpreted the Chinese central bank's statement as a sign that Beijing was ready to adjust the dollar peg in place for two years and allow the currency to rise.
China has effectively pegged the yuan at about 6.8 to the dollar since mid- 2008 to prop up exporters during the world financial crisis.
A statement by the People's Bank of China Saturday it would "strengthen the flexibility" of the country's currency has also nudged Asian stock markets higher.
New York's main futures contract, light sweet crude for delivery in July, surged 1.01 dollars to 78.19 dollars a barrel in morning trade, while Brent North Sea crude for August advanced 1.08 dollars to 79.30 dollars.
"Oil has been handcuffed to equities for sometime," said Victor Shum, a Singapore-based analyst with global energy consultancy Purvin and Gertz.
"Both oil and Asian stock markets are reacting to news over the weekend that China is likely to become more flexible with its currency against the US dollar," he told AFP.
"What this means to Asian economies is that the buying power of the Chinese consumer will likely increase as a result of the appreciating yuan, allowing them to increase their exports to China."
Shum however said "some of this initial excitement may die down" as China has also explained that any appreciation of the yuan would be gradual.
Analysts have interpreted the Chinese central bank's statement as a sign that Beijing was ready to adjust the dollar peg in place for two years and allow the currency to rise.
China has effectively pegged the yuan at about 6.8 to the dollar since mid- 2008 to prop up exporters during the world financial crisis.