Over the past 2 weeks I have been researching the CNY currency to find out exactly how this currency works and how a forex trader would use this currency pair and what to look for and what correlations it has in order help the forex trader have an edge in the market and always be one step ahead of the game.

CNY stands for the Chinese Yuan and others refer to it as Renminbi, CNY is currently valued at around R1.93 in South African rands. China is the 2nd largest economy in world, it would be beneficial for one to know what’s going on in China and how their general economy is doing.

CNY was introduced by the Peoples Bank of China (the central bank of the Peoples Republic of China with the power to carry out monetary policy and regulate financial institutions in mainland China) in 1948. The PBoC control interest rates and they hold over $1.3 trillion worth of treasury bills and that’s excluding all the other bonds from countries that are on its balance sheet. The PBoC is known for making aggressive interest rate changes and they also have the ability to reserve ratio requirements, what this means is that they can adjust the amount of cash the Chinese banks can hold in their vaults. By changing the ratio the PBoC can control how much money is in circulation and keep inflation within their target levels.

The CNY used to be pegged to the USD until 2005, so what this meant was that the exchange rate was fixed to the US dollar so for instance if the dollar rises or falls in value the CNY would follow accordingly. This currency was also devalued so that it could increase competitiveness in the Chinese industry. It was previously undervalued by as much as 37.5% against its actual purchasing power but recently the Chinese government and quantitative easing measures taken by Federal reserve and other major central banks have caused CNY to be within 8% of its equilibrium value in the 2nd half of 2012.

The CNY is currently the 8th most traded currency in the world (https://www.countries-ofthe-world.com/most-traded-currencies.html), even though CNY isn’t a commonly traded currency it still has a huge economy and its economic events could most likely impact other currencies closely associated with it. A good example of this is the Australian dollar, Australia is Chinas largest trading partner. Australia and China exchange over $100 Billion worth of products every year.

Strong data from CNY could indicate that the Chinese demand for Australian commodities might increase and weak data could mean the opposite.

With CNY being the 2nd largest economy in the world, where it stands economically has great impact on risk sentiment. If the economy in china starts to slow down then this could result in reduced appetite for risk and higher yielding currencies because they will be worried about potential impact on the global economy. While on the other hand if china’s economy is booming it can be positive for risk as market participants see this as a sign for further growth.

If one trades AUD, then it would be very beneficial to mark down on your calendar for Chinese economic releases and PBoC statements. More often than not good economic figures from China lead to AUDUSD or USDJPY rally and weak economic figures result in AUD selloff.

https://www.dailyfx.com/forex/technical/article/forex_correlations/2015/07/09/forex-correlations-Japanese-Yen-China-300.html

Important economic data one would pay attention to:

• GDP- this is usually reported on a quarterly basis

• CPI- PBoC watches this very closely and as traders we should too

• Trade Balance- a lot of the Chinese economy is made up of international trade, which makes the trade balance very important and something to watch as it could be a leading indicator as to where the Chinese economy is headed.

• PBoC interest rate decision- they are known for making aggressive monetary policy changes, especially when they feel their economy is “overheating” or needs more stimulus.

For more information of where the Chinese economy is standing and also what the PBoC is thinking you can go to:

http://www.pbc.gov.cn/english/130437/index.html

https://www.bloomberg.com/news/articles/2017-04-01/pboc-raises-interest-rates-on-standing-lending-facility-loans-j0z02zza

4 thoughts on “Understanding The CNY and it’s Impact on The Market”

  1. Katleho Gnaw Lephallo says:

    Man, this is a good introduction to the Yuan. Well written and easy to understand. Thanks for the info, really informative

  2. Ryan Gandalf van Jaarsveld says:

    Great start!! Looking forward to reading more about their monetary policy and economy as well as seasonality of financial flows and their impact on their trade partners.

  3. Giveness TSHIMOMO says:

    Thanks Guys

  4. Daniel Chan - Forex.Today says:

    very good Giveness , at least one person look into CNY .China is the second largest economy but the currency is still far behind because it is not as transparent as other nation .

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