The Chinese currency, also known as the yuan or renminbi, has a significant impact on global forex markets. As the second-largest economy in the world, China’s economic policies and currency fluctuations can have far-reaching effects on other countries and their currencies. This article will explore the various forex markets that are affected by the Chinese currency.
1. USD/CNH
The most obvious forex market affected by the Chinese currency is the USD/CNH pair. The CNH (offshore yuan) is the currency that is traded outside of mainland China, and it is heavily influenced by the policies of the People’s Bank of China (PBOC). The PBOC has been known to intervene in the forex market to keep the yuan stable, and this has led to fluctuations in the USD/CNH pair.
For example, in 2018, the PBOC allowed the yuan to weaken against the US dollar in response to the escalating trade tensions between the US and China. This caused the USD/CNH pair to rise, making Chinese exports more competitive. Conversely, in 2019, the PBOC intervened to support the yuan, causing the USD/CNH pair to fall.
2. Commodity Currencies
China is the world’s largest consumer of commodities such as copper, iron ore, and crude oil. As such, the Chinese currency has a significant impact on commodity currencies such as the Australian dollar, Canadian dollar, and Brazilian real.
When the Chinese economy is booming, demand for commodities increases, which leads to higher prices for these currencies. Conversely, when the Chinese economy is slowing down, demand for commodities decreases, causing the prices of these currencies to fall.
3. Emerging Market Currencies
China has become an important trading partner for many emerging market economies, particularly in Asia. As such, the Chinese currency has a significant impact on emerging market currencies such as the South Korean won, Indonesian rupiah, and Malaysian ringgit.
When the Chinese economy is growing, demand for goods and services from these countries increases, which leads to a stronger local currency. Conversely, when the Chinese economy is slowing down, demand for these countries’ exports decreases, causing their currencies to weaken.
4. Safe Haven Currencies
During times of global economic uncertainty, investors tend to flock to safe-haven currencies such as the US dollar, Swiss franc, and Japanese yen. These currencies are seen as a safe store of value during times of volatility.
However, the Chinese currency has also become a safe-haven currency in recent years, particularly for investors in emerging markets. This is due to its relative stability compared to other emerging market currencies and its status as a reserve currency.
Conclusion
In conclusion, the Chinese currency has a significant impact on various forex markets around the world. As the second-largest economy in the world, China’s economic policies and currency fluctuations can have far-reaching effects on other countries and their currencies. Traders and investors need to stay abreast of the latest developments in the Chinese economy and the policies of the PBOC to make informed trading decisions.
