List Categories | List All Articles | List Articles By Title
Chinas New Currency Regime
The 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@example.com or by calling 303-940-7777.
Read the entire CFS Capital Newsletter 'The Alternative', at: http://www.cfscap.com/news.htm
Forex Training: Follow Your Gut or Your Broker
Which way will the forex market move? Do you just follow your gut feeling? Or do you have Neo's sixth sense that would let you be one with the market and feel the underlying currents.Trading forex is a non stop action movie but a good one, where you really don't know who will win at the end.
Risk and Stock Trading Fees: The Two Barriers To Overcome If You Want A Successful Trading Career.
You know the old joke:"How do you make a million in the stock market? Start with two million?"There is no way around it, risk and stock market fees are a part of trading that you can`t avoid. But, you can manage your risk.
Option Arbitrage in the Forex Market
What is arbitrage? Arbitrage is the simultaneous buying and selling of identical financial instruments taking advantage of price discrepancies between different brokers, exchanges, clearing firms, etc. and thus locking in a profit.
Day Trading Training ... You need more than just going to a free stock market workshop to learn
Day trading is all about making buy and sell decisions. When you make a trade either your going to lose money or your going to make money, and some other times you will break even.
The Margin Advantages of Trading FOREX.
There is one aspect that is considered as one of the best advantages of FOREX Trading. This is related to the amount of money you need to place a trade, this is known as "margin", and in short, this is all that can be lost in a the case you had a bad trade.
The Miracle of Forex
My father, who owns a small parts store and garage for vintage British sports cars, called me up recently and droned on and on about how he is getting killed by the Euro. Confused as to how the Euro could possibly be affecting his small and seemingly insignificant business, I asked him how.
Be a Smarter FOREX Currency Trader: Three Basic Principles
Below I will describe three basic principles that may come in handy for currency traders. They are very easy to implement and potentially take advantage of as you will see.
The Secrets of the Super-Traders
The first and perhaps most important "secret" is to realize that your methodology or approach (no matter how good) is only part of being a highly successful trader. This applies to any trading style including, day trading, swing trading or position trading.
FOREX - Where Fortunes Are Made Everyday
The Foreign Exchange Market - better known as FOREX - is a world wide market for buying and selling currencies. It handles a huge volume of transactions 24 hours a day, 5 days a week.
Forex Currency Trading
It is possible to buy and sell money from different countries on the foreign exchange market called Forex. Forex currency traders can profit by taking advantage of the dips and swells in the foreign currency market.
Momentum Trading: A Practical Day Trading Strategy to Get Profits from Hot Stocks
Momentum day trading can be extremely profitable when done correctly..
Financial Crises, Global Capital Flows and the International Financial Architecture
The recent upheavals in the world financial markets were quelled by the immediate intervention of both international financial institutions such as the IMF and of domestic ones in the developed countries, such as the Federal Reserve in the USA. The danger seems to have passed, though recent tremors in South Korea, Brazil and Taiwan do not augur well.
Exploring the World of Day Trading
Are you looking into a career in day trading? In the past, the tools for day trading were available only to professionals. But thanks to the power of the Internet, everything you need to get started is now conveniently online.
How To Control Fear And Greed In Trading
There is an old saying that the market is driven by fear and greed. Anyone that has placed more than a couple of trades will surely have experienced these two emotions.
Forex Options Market Overview
The forex options market started as an over-the-counter (OTC) financial vehicle for large banks, financial institutions and large international corporations to hedge against foreign currency exposure. Like the forex spot market, the forex options market is considered an "interbank" market.
How to Trade Currency
We all know when you go on a trip to another country; you need to take some travelers checks and some cash in the currency of that country. This can be advantageous because one country's currency is usually worth more or less than the other.
Day Trading the Index Futures - How to Judge Good Entries
QUESTION: If the SP futures fall through support and go straight down for another two points, and I want to get short, should I a.)enter immediately, b.
Q1: When you consider that the foreign exchange market has become the world's largest financial market, with over $1.5 trillion USD traded daily, where does it go from here?A1:The FX market is unique, in the UK there is no central exchange, we trade via the inter bank market.
Trading Tips No 1: Learn How to Trade The Moment of Truth
So you have learned how to trade the markets by mastering a few trading tools like Moving Averages, Channels, Stochastics, MACD, or RSI - that is a great accomplishment achieved by only a few. However, having the tools and rules to trade markets successfully, year in and year out, is only half of the challenge.
Intrenet Marketing VS Forex Currency Trading
Have you noticed that when someone's trying to sell you something - such as a system for making money - they always make it look far easier than it is? Let's look at two Internet businesses, almost as diametrically opposed as it's possible to be - Internet Marketing and Forex Currency Trading.You've probably heard the old Internet adage - build a better website and they will come.
home | site map
All articles are copyright to their owners.
Note: this website lists articles, We do not Write Articles !