For those wishing to trade the effects of a revaluation of China’s currency it will be wise to remember that there is perception and there is reality. The news just broke from Chinese Central Bank sources that China will allow “greater flexibility” in the value of its currency, the Yuan exchange rate. China is orchestrating Yuan revaluation. With the economic summit in Canada a week away China has come under increasing international pressure to let its currency, called the Renmibi or Yuan, rise with market forces. The US congress is considering legislation labeling China a “currency manipulator” which could lead to a number of very specific and painful sanctions and, probably, a trade war. Nobody would benefit from an all out trade war and it appears as though China is going to let its currency slowly rise compared to everyone elses. Now the question for the Forex trader is what signals to watch when trading. There will be real economic indicators and there will be China’s elite orchestrating Yuan revaluation.
“China’s decision to increase the flexibility of its exchange rate is a constructive step that can help safeguard the recovery and contribute to a more balanced global economy,” President Mr. Obama said in a prepared statement. It would seem that both sides are involved in orchestrating Yuan revaluation. It is a little like the old days when China was closed off from the world and analysts poured over the most cryptic proclamations of the Chinese government for hidden meaning. Just how fast will China let the Yuan rise in value? What will they do if their own internal political problems take precedence? What will the US and other do if the revaluation of the Yuan is so painfully slow is to be almost no existent? Good Forex advice will be to watch the market more so than China officials orchestrating Yuan revaluation. Politicians and diplomats have ulterior motives based upon their constituencies. The market is its own boss and responds to the trades of millions of traders.
Nevertheless, slow for fast, orchestrated or not, the fact that China will allow its currency to fluctuate more and more with the Forex market will be welcome, both to traders and to the economy at large. For the Forex trader the issue will be just how fast and how far the revaluation of the Yuan will progress. The likelihood is that the Yuan will soon be worth more dollars, Yen, Euros, and Pound Sterling. However, as market forces exert themselves there will be speculation as to how fast the revaluation will occur with Forex traders betting on both slower and faster changes in value. Success in Forex means a plan and a method. Traders will need to watch and learn as China loosens up its currency controls. It is only possible to plan when there is sufficient information and transparency. China is orchestrating Yuan revaluation with the help of its trading partners in order to come to an agreed upon solution. How this will work out for the day to day Forex trader will only become clear with time and observation of the markets.
More Resources
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