Retail traders depending on where they live might focus more on the Hong Kong dollar versus the Chinese Yuan. In forex markets regular traders like you are unable to access the Chinese Yuan. It is strictly traded even with large international corporations. A part of the reason behind trading it privately is the pegging it has undergone to the USD. It is always undervalued to the USD, which matters a great deal to the Chinese. They do not want the influence that publically trading currencies can have on the markets. It makes for an interesting economic set since one still has to remember that China is the second largest economic power in the world. It has a lot of influence over the Asia-Pacific region, particularly of Australia. Australia is a major exporter/importer for China, thus the AUD can change on Chinese news and rates.
Examining Exotic Forex Currencies like CNY
The CNY is an exotic currency because it is in an emerging market. In recent years it is considered one of the G20 currencies, but it has not displaced any of the top G7 currencies out there. The CNY is not pegged solely to the USD. In fact it is pegged to the EUR and JPY currencies which can further affect how it reacts in the market. According to previous information the CNY was pegged around 8.11; this was in 2005. If you look at current rates it is closer to 7.000 against the USD at least.
For forex the trade balance is another concept to asses like that of China’s trade surplus. In the past five years the surplus China has been able to create is astounding. There have been worries about the economy because of a fast rate of growth; however, it is still considered a good overall economic concept to have a trade surplus versus a deficit. One of the helpful moves China has made for its country was to buy up a variety of failed USD debt. To get money or to offset the loan payments at various banks, China started to buy up the debts effectively assuming the loan by paying it off. It might sound like a bad deal for China until you think about forex.
If the USD is undervalued this will help the CNY. Not only that, but the debt is not gone just paid off putting the bank ownership in the hands of China. China has purchased a lot of real estate, businesses, and bonds by offsetting debts for the USA and becoming the owner.
Forex Chinese Intervention Worries
China is definitely a government run country unlike many of the other countries that will be discussed in educational lessons and posts. The Chinese government tells people what they can view on the Internet, how they have to live, and has even said how many children a family could raise.
All of this has an effect on forex. It might sound silly; however, when you are interfering in regular choices such as what to buy, when you can buy certain goods or even if you can buy them it will affect how the currency is spent, thus the value in forex markets.