Monday, 20 August 2012

US Dollar and Chinese Renminbi/Yuan Appreciation Update

Following up on my update regarding the Japan Yen & US Dollar exchange rate, here is an update regarding the US Dollar and Chinese Renminbi exchange rate from my post at the beginning of the year.

At the beginning of 2012, the US Dollar and RMB had just completed another round of almost straight line depreciation from an exchange of 6.8 to 6.3 over the course of 1.5 yrs, yielding a 5% annual rise, a decent enough return.

However, it seems I had picked the perfect time to mention the, at the time, very reliable appreciation because it ended almost exactly then.

From Jan to Apr, with various economic indicators showing a slowing China economy, the government apparently decided to hold the USD/RMB peg steady at 6.3.  After April, the exchange rate actually reversed and went higher to almost 6.4.  As can be seen in the 5 year chart below, this bump is somewhat unprecedented within the last 5 years.  However, a strongly slowing China is also somewhat unprecedented which explains the unusual move.

If China economy slows further, expect to see the RMB to either weaken vs the US dollar (somewhat unlikely due to equilibrium issues) or at least hold steady around the 6.3-6.4 range.  Regardless, it seems that the Chinese government is much more concerned with preventing slowing growth in China than it is with appeasing international calls for currency depreciation.

This highlights the dangers sometimes inherent in currency trading and speculation as you are at the mercy the the government and their central banks!

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