Amid all the shenanigans around the Peoples’ Bank of China’s moves this week, some may have missed a key development for traders. The Chinese Yuan, or Renminbi, is moving away from its status as a fixed currency towards a floating regime. Trading in Yuan (CNY) for onshore settlement in China is restricted, but there is a Hong Kong settled Yuan (CNH) that is freely available.
This means there are more currency pairs to consider when seeking market opportunities.
Traders should be aware of a couple of market wrinkles. First of all, the CNH doesn’t trade 24 hours. Traders should check with their provider, with most offering 12-15 hours of trading a day. Secondly, some traders may be concerned about the spread – a key cost in trading. However, bear in mind that a 10 point spread in a quote such as 6.4578/88 is about 0.015%. By comparison, a 1 pip spread in AUD/USD (say 0.7374/75) is 0.014%.
Here’s the one hour chart:
The change in behaviour this week is dramatic. The market rose as traders anticipated a strong devaluation. The PBoC called a 10% devaluation “ridiculous”, and USD/CNH fell. This morning, the USD/CNY fix was at 6.3975, LOWER than the previous day. This may see the premium of CNH to CNY further eroded.
Traders may consider a sale at current prices, with a stop loss above the “bump” at 6.4750. The target is the 61.8% retracement around 6.3600.