HiFX comments on the movement of the Chinese yuan against the US dollar
Chris Towner, director of FX advisory services at foreign currency specialists, HiFX, comments on the movement of the Chinese yuan against the US dollar.
Chris said: “2015 has given us a few unexpected events in the FX markets, which always give rise to volatility.
“We started the year with the safety net of the Swiss National Bank protecting the CHF from strengthening, resulting in unprecedented moves of up to 40% in a matter of minutes, wiping out not just some individual traders but also trading companies.
“Recently, we have experienced another unexpected event but this time from China. Who would have thought in 2012 that the Chinese yuan would have been weaker than the US dollar in 2015? This currency pair which was dealing at 6.25 in the final quarter of 2012 has been dealing at 6.40 of late as the Chinese purposefully weaken their currency. The reasons behind this determination to weaken the currency are clear. China’s economy is weakening and in order to try and stimulate it, they have resulted to making their currency more competitive as Japan and Europe have stealthily been stealing market share in the global export markets.
“Movement in currencies do have an impact of an economy and a competitive (weaker) currency is seen as a stimulant. The only issue here is that the currency that is left too strong is the US dollar and the question going forward is how long will the US sit there and tolerate the currency war going on around them…We can expect some further currency volatility between now and the end of the year as this gives the US an excuse not to raise rates as their currency is acting as a brake on its economic recovery.”