Forex Investment and Currency Trading

The PBoC’s Monetary Policy Report was released earlier today. The report indicated that the central bank will “improve the yuan exchange rate mechanism” moving forward based on capital flows and fluctuations in the major currencies. This apparently establishes a new set of criteria for determining how and when the CNY will move. At the very least, this suggests that the authorities are becoming more sensitive to the concerns that many countries are having with regard to domestic currency appreciation versus the CNY; as the USD falls and the CNY has operated under a de facto peg over the past year, [...]

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The Chinese renminbi has traded in a range of narrow range of 6.8135-6.8527 per U.S. dollar over the last six months – except for a one-week period at the beginning of January, when it spiked to a peak of 6.8870. This spike is notable because it appears to have been a test by the Chinese authorities to international reaction to a weaker renminbi. The international response was forceful and the People’s Bank of China (PBOC) soon pushed the currency back into its previous narrow trading range against the U.S. dollar. While one cannot rule out further tests by the PBOC [...]

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USD/CNY has traded within a tight range thus far in January and it appears that the authorities prefer to maintain currency stability ahead of the week-long Lunar New Year holidays beginning January 26. The USD/CNY central parity was consistently set below 6.84 with the highest at 6.8399 on January 14. Trading activities will likely wind down as the holidays approach and the PBoC is unlikely to cut rates
further this month. With most of the December data announced, the only key data left are December CPI and 4Q GDP. While inflation is expected to decline further to 1.6% yoy, fears of [...]

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The Chinese yuan (CNY) has been on an appreciating path since its de-pegging and revaluation on 21 July 2005. At the start of 2008 there had been suspecting a shift by the Chinese authorities towards managing the CNY more on a trade-weighted basis rather than just against the USD. However since July 2008 the CNY has remained in a narrow range against the USD while the USD has been rallying against most other trading partner currencies. This suggests that there is some reluctance to move the CNY weaker against the USD. The result has been a sharp appreciation in the nominal [...]

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