I’ve been struggling to find information about this searching the internet. Perhaps my resources for such information isn’t that great. Luckily there’s baby pips! I want to get an understanding of how Chinese economic data affects other currencies, namely the majors.
If China is doing well how do the EUR,CAD and USD do? If it is doing badly, as we have seen, what does that mean for the neighbouring currencies?
I understand certain relationships like if currency devalues this may be good for the JPY, AUD and NZD because it may spell cheaper imports for them. Does the same hold true for pairs like the EUR, CAD and USD?
It’s pretty straight forward when you analyze the information for a given country but I have a lot of difficulty understanding the relationship of one country’s economic data on another. What are some of the resources you all have used to develop your understanding of these relationships?
Forexwise if China does well the Yen is getting more expensive. When the eurusd rate rises this mean that the EUR is doing well in terms of value towards the dollar. When the rate goes down the EUR is losing.
Economic wise when China does well, its neighbouring countries probably benefit from that as China exports a lot but also import stuff. And vice versa. It depends on what kind an economy that neighbouring country has. When it is very export driven and china does well that country will do well also as the Chineze will import more. This just scratches the macro economic theory, but it gives you an idea.
Yes, all countries with a lot of import from China. But don’t expect a significant co-relation. A countries cahflow does not only is about import/export with China. More factors are involved.
The google term you maybe are looking for is macro-economic.
Thanks for the reply! That makes a lot of sense and answers all my questions.
What I was referring to though when I said what resources to use I wasn’t referring to macro-economic information as much as relationships between two countries. If I look at macroeconomic data for the US and deem the US economy is doing badly I can understand that USD will do badly. If I look at Aussie data and its good I can understand that AUD will go up. Put them together and you get long AUDUSD for example. That’s fine. My problem was more specifically to China but then again applies to any big exporter. Like I said you answered the questions really well and it helped clarify it a lot. Thank you!
With regards to the Yen you should consider that economics is not all that determines how well a currency does. Othher factors may have an even greater impact with regards to the fx rate.
Speculation: traders expect things WILL go well or get worse. They position themselves byt either going long or short. When a lot of traders do that the liquidity of that currency on the market dries out and the rate will fluctuate without any specific economic news or reason. That is what happened. Chineze investors paniced and the liquidity got drained (not only forex but also stock (stocks are paid with currency. :)). Asian investors have a more (as I understand) speculative nature and aim high and have therefore get out sooner as they are leveraged too much.
Governmental support: Goverments play tricks to influence the rate. Some governments decide to link their currency to the USD. When the USD goes up, their currency goes up artificially. Other governments, like the US and China, Buy their currency when they think the rate is too low or too high. China likes the Yen not to be high as that has an effect on the export, what is their biggest source of income.
Regarding relationships of China with neighbours and other countries it is important to dig a bit deeper into the fundamentals. The fact that China is an exporter and another country is an importer is not enough. For example:
Having in mind that more than 30% of China GDP is driven by its export and that more than 30% of this export goes to the US and EU you can simply do the math that 1% increment in the demand in EU and US will lead to 0.1% increment in the GDP of China, which if there aren’t any government manipulations will lead to Yuan going up.
Around 60% of China’s export is electro mechanicals, 20% is textile, plastic goods etc. So you have to know what kind of goods the particular country is importing from China in order to know what the impact will be.
Like Toekan said China also imports a lot of stuff and in particular – Commodities. It is a good idea to know if a certain country is a big importer into China. For example less imports from Australia which ships 30-40% of its exports to China is a bad news for both of them… and lower GDP of China will have a negative impact on both Yuan and AUD/USD…
RRR cuts lead to depreciation in Yuan last week because it lead to there being more liquidity available within in the market, is this rate cutting strategy a form QE employed by PBoC
