Fallouts from the Chinese Yuan Devaluation

By Lex Yaranu | Friday, August 14th, 2015

Chinese Yuan devaluationThe People’s Bank of China (PBC) took the financial world by surprise by devaluing its currency, the Chinese Yuan Renminbi for three days in a row. By cutting the reference rate for the Yuan, the Chinese apex bank spooked the markets and sent the equities markets and price of commodities downwards.

This move was in response to the indices which showed that China was going to find it very difficult to meet up with its 7% growth forecast for 2015, and may have decided to make the prices of its exports cheaper by devaluing the currency.

China has operated a fixed rate policy for th Yuan, a move which has come under consistent criticism by the US and the IMF. Late Thursday, the Deputy Governor of the PBC said that the government would not allow the Yuan to depreciate continuously, and by Friday, the rates held steady.

Why is this considered major news for the binary options markets? China houses 40% of the world’s production and its thirsty industries have to be fed by commodity imports which come in mostly from Australia, South Korea and other Asian countries. A slower Chinese economy will mean that imports from these commodity countries will also slow, and this move has affected commodity prices and the currencies of these countries.

China has shown intent to do what it needs to do to meet its growth forecasts. Binary options traders must therefore keep watching Chinese data on manufacturing and GDP as these could signal the PBC’s willingness to cheapen Chinese exports by devaluing the Yuan further. This would of course have a major effect on the commodity currencies and commodity assets traded in the binary options market.

The equities markets were also not spared in this move. Indeed on Tuesday August 11, 2015, every listed stock on the Dow went into the red during the trading session. These are the sorts of trading opportunities that traders would like as the volatility generated could provide profitable opportunities.

Published in News & Analysis

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