The National Bureau of Statistics in China has reported that the consumer price index hit 7.1 percent in January from a year earlier, revealing the biggest rise in inflation since September 1996, further accelerating from December's 6.5 percent rise. In the midst of the worst snowstorms in 50-years, economists had expected a fast rise in China's inflation. Food prices rose 18 percent as blizzards halted transport and destroyed crops. The Chinese government now has the heavy task on reducing inflation without compromising the expansion and growth of the world's largest nation.

Consumer Price Index ''could easily reach 10 percent later this year, driven by severe overheating of the economy,'' wrote Charles Dumas, Lombard Street Research economist from London.

The rising Chinese Yuan is now considered by the People's Bank of China as the tool of choice in order to fight China's rising inflation rate. Zhou Xiaochuan, head of China's central bank has repeatedly stated that the Chinese Yuan will gradually reach a balanced level that will help bring an equilibrium to China's balance of international payments. Last year in 2007, the People's Bank of China raised interest rates six times, raised the bank's reserve requirement by ten times and finally another interest rate hike last month.

''We expect no immediate rate hikes from the PBoC as a reaction to today's CPI number,'' wrote Ting Lu, a Hong Kong-based economist with Merrill Lynch.
''However, policymakers are likely to permit fast [Chinese Yuan] appreciation to fight inflation after strong readings of export data,'' Lu said.

Merrill Lynch currency analysts forecast the Chinese Yuan will appreciate 9.6 percent in 2008, compared with 6.8 percent in 2007. Alongside China's fast economic growth and rising inflation, the US Federal Reserve's expansionary stance is also prompting the Chinese Yuan to rise. The People's Bank of China pays 1.31 percentage points more on its six-month bills than it earns on similar-maturity Treasuries after the Fed's five rate cuts since September. Six months ago, the spread was 2.2 percentage points in favor of U.S. debt.

In forex trading, the Chinese Yuan has risen 7 percent in the year 2007. So far in 2008, it has risen 1.9 percent to 7.1623 per US Dollar so far. The Chinese Yuan will be expected to rise further this year.

The Yuan has reached new levels against the U.S. Dollar on Thursday at a central parity rate of 7.7386 Yuan per Dollar, according to a Chinese forex-trading system. The Yuan has risen by 701 basis points since the beginning of 2007 from 7.8087 Yuan against the U.S. Dollar on December 29, 2006. The appreciation is thought to have been triggered by the weak U.S. Dollar in international markets. In conjunction with the weak U.S. Dollar, China's huge foreign reserves is considered as a major factor in the appreciation. The U.S. Treasury secretary Henry Paulson set off on his third trip to China in seven months to prepare for the second meeting of the China-U.S. Strategic economic dialogue which is scheduled for May in Washington.

The Chinese Yuan RMB managed to stay strong for three consecutive days against the US. Dollar, with a central parity rate of 7.7798 Yuan to the US. Dollar, according to a forex trading system in China. The value of the Chinese Yuan recently overtook the Hong Kong Dollar for the first time in 13 years, with a central parity rate of 0.99945 Yuan to a Hong Kong Dollar.

China's Central bank has also reported a 34 percent growth in foreign exchange reserves, jumping by 200 billion US. Dollars last year. According to the Chinese Central bank, foreign exchange reserves have more than tripled.

The Chinese Yuan rose above the Hong Kong Dollar for its first time in 13 years, revealing China's economic prowess and advancement. This has given risen to debates about Hong-Kong's exchange rate linkage to the US. Dollar. The strength of the Yuan may have added tension to whether or not Hong-Kong should reconsider its 23 year old currency peg to the US. Dollar to show closer economic ties with mainland China. ''Breaking 7.80 is psychologically impressive, but it's just a passing point,'' said C. H. Kwan, a Tokyo-based senior fellow at Nomura Institute of Capital Markets Research, a unit of Japan's biggest brokerage. ''The Hong Kong dollar is likely to remain pegged to the U.S. dollar at a central rate of 7.80 in coming years.''

In forextrading, the Chinese Yuan went up 1.0002 per Hong Kong Dollar and climbed 0.16 percent to 7.7950 to the US. Dollar, which is its largest rise in six weeks. Despite rising over that 'psychological level', Joseph Yam, the HKMA Chief said on August 25 that a 7.80 Yuan level won't play a role in Hong Kong's currency policy. Despite this, there is talk of a cheaper Hong Kong Dollar in the future. ''The clock is ticking,'' said Sean Callow, a senior currency strategist at Westpac. ''If you ask any Asian policy makers, they're in agreement that the U.S. dollar is heading lower in the long term. This makes the Hong Kong dollar look unnecessarily cheap.''

The Chinese Yuan is continuing to rise in forex trading amidst a weakening US. Dollar. Despite this sudden rise, the Chinese government continues to control their currency, keeping it low which is affecting US. trade with China. Investment bank JPMorgan is assuming the yuan will reach 7.75 against the US dollar by year's end, due to strong trade ties and economic growth. Trade surplus for China was up a record level of 187 billion Yuan during October, with foreign exchange reserves reaching up to 7.9 trillion Yuan.

In forex, the Yuan increased by 0.11 percent to 7.8436 against the US. Dollar. Ever since control was released in July 2005, the Yuan has gained 3.3 percent.

The US. trade deficit has continually widened by 1 billion US. Dollars to 23 billion US. Dollars during the month of October. Officials including the Federal Reserve chairman, Ben Bernanke and US. treasury secretary Henry Paulson will visit China to lobby for a more flexible Chinese Yuan.

The Australan Dollar's value rose on speculation that China's central bank will buy the currency and also increase purchases of commodities that the nation exports. The currency has experienced its biggest fall in five weeks on a report that China may diversify out of US. Dollars in its $1 trillion of foreign exchange reserves which is the worlds biggest reserve. The Australian Dollar rose on speculation that China will buy Australian gold. Australia is currently the second largest producer of gold. ''The Australian dollar is being supported by higher commodity prices,'' said Sue Trinh, a currency strategist at RBC Capital Markets in Sydney. ''It's not unreasonable to think the Australian dollar would also be on China's shopping list.''

In forex the Australian Dollar valued at 76.95 US. cents this morning in Sydney in comparison to 76.59 US. cents during late Asian trading yesterday. At the moment, the Australian Dollar is falling because the Reserve Bank is unlikely to raise interest rates again, after November 8's interest rate hike to 6.25 percent, which is the highest in about six years.

The Yuan has risen to new highs against the US. Dollar today to its highest level since Beijing revalued the Yuan 16 months ago. The Yuan has been hitting higher levels against the US. Dollar almost every week despite only gradual appreciation. In forex against the Dollar, the Yuan was worth 7.8697 US. cents which is higher in comparison to Wednesday's close of 7.8661. Since the cutting of its direct link to the US. Dollar on July 1, 2005, the Yuan has gained around 3 percent. The central bank of China only allows the Dollar and Yuan pair an 0.3 percent movement during trading. The US. and China's other trading partners have been pushing for a faster increase, saying that a weak Chinese currency is adding to China's large trade surplus by making China's goods cheaper and a lot more competitive. The global trade gap for China hit $23.8 billion dollars in October which is a record high for any month, bring its surplus total for the first 10 months of this year to $133.6 billion which is way above the total surplus of 2005 which is $102 billion.

The Asian currencies were solid against the US. Dollar on Monday after the release of weak economic data strengthen the view the US. interest rates should remain steady for the moment. U.S data revealed that the US. economy grew at an annualized rate of 1.6 percent in the third quarter which is its slowest rate in more than three years due to a falling housing market. This fall led to fresh gains for the Asian currencies in forex and also followed multi week highs in foreign investment inflows.

''Dollar/Asia downside momentum appears apt to follow through today, with the below consensus US GDP print again raising market doubts to future Fed tightening,'' analysts at JPMorgan said in a statement.

In forex trading with the Japanese Yen, it rose one percent from the level it traded on Friday at about 117.50 Yen per Dollar. Forex with the South Korean Won rose to a one month high to 942.60 per Dollar. Forex with the Singapore Dollar hovered at about 1.5580 per Dollar and forex trading with the Philippine Peso gained about one fifth of a percent to 49.73 to the US. Dollar, which is its highest in more than four years.

According to the United Nation's trade body, Asian nations with large foreign currency reserves are emerging as a major source of direct foreign investment as they seek markets throughout the world. Investment overseas by companies from China, South Korea, India and other East Asian nations contributed up to $68 billion US. Dollars in 2005 with outflows likely to increase due to flourishing foreign currency reserves, the U.N Conference on Trade and Development said in its World Investment Report which was released on Monday. These large reserves have assisted Asian companies who have been scouting to secure new markets and resources to support the region's economic boom.

The reported cited that the Chinese government is considering to set up an investment fund with a part of its foreign currency reserves which total about $1 trillion US. Dollars, which is the largest in the world. It also said that China may be able to do what Japan did in the 1980's, when Japanese firms used their surplus foreign currency reserves to expand across the world.

A major part of Chinese overseas investment is set on acquiring access to natural resources like oil while the other East Asian countries have focused on expanding in advanced economies through aquisitions.

Speculation of a slowing global economy may slow the Australian Dollar for its third consecutive day and may also decrease the demand for Australian commodity exports such as coal.

China which is Australia's second biggest market for exports, increased their interest rates on August 18 to 6.12 percent which may then decrease exports to the nation with the largest population in the world. Australian exports are worth 20 percent of the Australian economy.

In the foreign exchange the Australian Dollar bought 75.93 U.S cents at 8:19am in Sydney in comparison to August 18's 75.94 U.S cents.

Tony Morris, an ANZ senior currency strategist has said that, "If China moves to slow growth it will mean they will put growth on more sustainable footing which is still good for Australia in the long run."