| |
![]() | |
Currency Trading Information Channel |
|
![]() |
|
|
![]() |
Chinas New Currency RegimeThe base unit for the renminbi is the yuan, which is how the Chinese currency is most commonly referred to. The official ISO abbreviation for the yuan is CNY, but it is also commonly abbreviated in the forex industry as RMB. The yuan had been pegged at 8.28 to the dollar since 1994. While China has been openly discussing scrapping the dollar peg for several years, many traders weren't expecting a move until later in the year. The PBC declared that the new regime would be a managed floating exchange rate based on supply and demand in relation to a basket of currencies comprised of the U.S. dollar, euro, yen and the Korean won. The yuan s central rate against the dollar was then adjusted by just over 2% to 8.11. Keep in mind that the RMB exchange rate is quoted in dollar terms, in other words, the dollar is the base rate of this currency pair. A 2% positive revaluing of the RMB results in a 2% decline in the dollar rate versus the Chinese currency. According to the PBC, the RMB will now be allowed to fluctuate up to 0.3% on any given trading day with the daily closing price then serving as the midpoint of the next day's trading range. That could mean as much as a 6% move in either direction in a month. However, the PBC is very unlikely to allow for that kind of movement and has in fact already intervened in the forex market to prevent the yuan from straying too far from 8.11. With over US$700 billion in currency reserves they certainly have the power to enforce their wishes and it's doubtful that forex speculators will be willing to test the resolve of the PBC in any meaningful way any time soon. While the floating of the yuan, albeit tightly controlled, is a significant policy shift, the initial revaluing of the RMB is seen as largely symbolic. Chinese president Hu Jintao visits Washington in September and the modest revaluation may have succeeded in heading off a face to face showdown on China's exchange rate policy. Critics contend that the yuan is undervalued by more than 20%, affording China an unfair trade advantage. U.S. manufacturers have demanded as much as a 40% revaluation. A more significant move than 2% is needed to truly affect the massive trade imbalance between China and the U.S., so there will undoubtedly be calls for further RMB appreciation. So where might the renminbi be headed longer term? One year non-deliverable forward contracts in Singapore rose to RMB 7.64 before edging higher again, suggesting scope for an additional 6% of RMB gains over the next twelve months. More aggressive projections suggest potential for 7% appreciation by year end and up to 15% gains by the end of 2006. However, traders can be assured that any such projections will only be achieved if the PBC will allow it. Given the tight constraints of the new renminbi regime it is unlikely that CFS clients will see any RMB trades in their accounts any time soon. First of all it will take several months of operation to allow traders to get a handle on how the new managed float will operate. There's just very little transparency at this point. While there may not be any trading opportunities in the RMB any time soon, China's move has created opportunities elsewhere. Other Asian currencies such as the Japanese yen rebounded on the news, but quickly retraced when it became apparent that the RMB wasn't really going anywhere. The yen is likely to remain under pressure as the dust settles, although near term losses may be a little more tentative while focus remains on China. The biggest reaction to the policy shift by China, and likely the most sustainable, was seen in the U.S. treasury market where yields shot higher. The new exchange regime suggests that China is likely to be a less reliable buyer of U.S. treasuries as well as the dollar. Higher treasury yields will net higher mortgage rates which may prick the U.S. housing bubble, dampening home sales and the consumer spending commonly associated with the purchase of a home. Higher corporate lending rates are likely to negatively impact stock prices and the broader U.S. economy. Ultimately we could see a resumption of the long term downtrend in the dollar. While this assessment may seem bleak in a broad sense, this is exactly why alternative investments, such as the Managed FX products of CFS, are an integral part of a diversified portfolio. The burning question now becomes: are we better off having forced China's hand on their currency policy? I don't think there's any question that the ideal is a free floating and open exchange rate, where market forces set the price and government intervention is limited. However, the pains associated with the aforementioned scenarios may be greater in the near term than any competitive advantage the U.S. might gain as a result of higher yuan. Peter Grant has spent the majority of his career involved in the global foreign exchange (FX) market. He is the Vice President of Operations for CFS Capital Management http://www.cfscap.com and may be reached at [email protected] or by calling 303-940-7777. Read the entire CFS Capital Newsletter 'The Alternative', at: http://www.cfscap.com/news.htm
The Best Forex Brokers and FX Trading Platforms in 2022 ABC Action News Tampa Bay What are the Benefits of Currency Trading for Corporate Leaders? Analytics Insight 4 Ways COVID Boosted Currency Trading Yonkers Tribune. 10 Best Forex Brokers Australia in 2022 - High Leverage ASIC Sites Business 2 Community 4 Reasons Environmentalists Care About Forex Trading Green Prophet Latest Trends Of Bitcoin Trading In North Korea – Harlem World Magazine Harlem World Magazine Rupee weakens to a new low; traders see currency breaching 79/$ soon Business Standard Find out how to calculate exchange rates with Clear Currency Eastern Daily Press CFTC Charges South African Pool Operator and CEO with $1.7 Billion Fraud Involving Bitcoin | CFTC Commodity Futures Trading Commission Stocks open slightly lower, continuing dismal start to year The Sun Chronicle Form 424B2 CITIGROUP INC StreetInsider.com Naira Performs Badly at Currency Market Amid FX Supply Crunch Business Post Nigeria Wealthsimple review 2022 MoneySense Trading Support and Resistance DailyForex.com Bullish Japanese Yen - Peak Rates and Oil to Benefit Battered JPY: Top Trading Opportunities DailyFX Mastering the Forex Market Finance Magnates Basics of Forex Trading - Part 1 FX Empire What are the Pros and Cons of Forex Trading? RealtyBizNews Moscow Limits Foreign-Currency Trading to Shore Up Struggling Ruble The Wall Street Journal What is forex trading and how does it work? The European Sting How to Know Which Currency Pair to Trade Startup.info Forex (Foreign Exchange) Explained | US News U.S News & World Report Money Currency Definition | US News U.S News & World Report Money 10 Best Forex Brokers for July 2022 - Trading Business 2 Community BC: Tips for Success in Forex Trading Punch Newspapers Is forex trading a way to make a living? Nairametrics The Most Common Warning Signs of a Forex Scam Finance Monthly RBI hits hard on Bitcoin, DeFi, crypto trading platforms Investing.com India Trading Forex vs Futures: Key Differences IG International Currency trading in overdrive with dollar at highest level in two decades (NYSEARCA:UUP) Seeking Alpha CEO Of Cryptocurrency And Forex Trading Platform Charged With Fraudulent Scheme Involving Over $59 Million Department of Justice FX trading: A loser's game? ETF Stream What is Hedging and how can it be used in Forex Trading? Deccan Herald Best books to learn Forex Trading from scratch Free Press Journal Forex Trading Hours: Limitless Trading in an Endless Market The Coin Republic How to Trade Forex TD Ameritrade Forex Trading TD Ameritrade What Every Australian Forex Trader Needs to Know Analytics Insight Even the Foreign-Exchange Market Is Getting Kind of Crazy The Wall Street Journal How To Compare The Relative Strength Of Currencies Finance Monthly Why forex trading is not gambling Nairametrics Russian Authorities Crack Down on Illegal Currency Trading The Moscow Times Currency Investing Makes a Comeback | RIAIntel RIAIntel.com Is forex trading halal or haram? The Armchair Trader AUD/USD Forecast: Australian Dollar Bounces Hard DailyForex.com FOREX.com Review | The Ascent The Motley Fool Five Important Facts About Online Forex Trading In New Zealand Otago Daily Times How Currency Trading Works Investopedia Changing the Top Global Currency Means Changing the Patterns of Global Trade Carnegie Endowment for International Peace Regulators tighten control on China’s US$30 trillion currency market South China Morning Post What Is Forex Trading? A Beginner's Guide Investopedia Analysis | How Sanctions Make the Ruble Harder to Trade or Value The Washington Post 15 Banks & Credit Unions That Exchange Foreign Currencies Business Insider 6 Questions About Currency Trading Investopedia Jeffrey Benson launches free forex trading education to help global youths become financially free Vanguard
|