Equity markets in China continued to climb to a record close as the Chinese yuan pared back on the week’s advance. Already making headway against the US dollar for a majority of the week, traders pushed the underlying yuan back a bit after the People’s Bank of China set the highest reference rate since the end of the dollar peg earlier in the week. As a result, the yuan traded down to 7.5465 against the US dollar while paring back to 10.31 against the Euro and 15.21 in exchange for the British pound. Separately, Chinese stocks made further advances on the session, helping the CSI 300 benchmark index to close higher by 1.1 percent. At the close of business for the week, the benchmark was able to add 55.58 points to 5,296.81. The day’s close helps the index solidify its status as one of the fastest growing markets in the world, as the gauge has now risen 19 percent this month. Helping to boost the day’s bid speculation were shares in China Southern Airlines and Shanghai Airlines Co. Both company shares were bolstered higher to the daily limit after announcing airplane orders valued at more than $2 billion. The added planes are indicative of expansion plans in the near future.

China Becomes Largest Trading Partner to Australia
Upon the release of Australia’s trade deficit, it was revealed that China’s demand for commodities has now surpassed that of Japan’s. The surge in demand has made China importers Australia’s largest trade partner, helping the overall deficit to shrink by more than expected in the latest reading. Total trade between the two countries was in the sum of A$50.5 billion for the past 7 months, higher by 20.2 percent on the annualized comparison. Japan’s trade total with the Pacific continent fell short to A$49.7 billion. Although good for both economies, the increase in Chinese consumption is likely to add to already rising prices of base metals including iron ore, zinc and coal. The increase in prices should help to fuel Australia’s currently running economic expansion.

US President Bush Urges Open Market Environment in China
Meeting with Chinese officials in an economic conference next week, US President Bush is said to be pushing for more of an open market setting in the world’s fastest growing economy. Scheduled to appear at the Asia Pacific Economic Cooperation forum in Australia, President Bush will meet with Chinese President Hu Jintao prior to the formal opening of the forum. Although noting that the relationship between the two nations have become “complex” over recent disagreements, Bush noted that there is opportunity for prosperity. “We want there to be free trade and fair trade”. The meeting is the latest in a year long series of appointments between both sides in hopes of stabilizing trade agreements tarnished by what some have deemed an undervalued currency.

Gains All Around, Regional Markets Run Higher
With risk aversion taking a back seat ahead of the long weekend in the US, Asia regional stock markets advanced during the overnight. Hong Kong’s Hang Seng Index advanced to close at a record in the overnight hours, rising 499.60 points to close 2.1 percent higher at 23,984.14. The new record close was supported by strengthened demand for stock in HSBC Holdings and Shanghai Electric Group Co. HSBC shares were boosted ahead of an afternoon speech by US President Bush, with many speculating a medium term subprime bailout scenario. Singapore shares also gained in the session on the backs on banking and lending sector stocks. As a result, the Straits Times Index was able to climb 71.76 points or 2.2 percent to 3,392.91.

Richard Lee is a Currency Strategist at FXCM.