While the Chinese yuan has been gaining traction in global payments, it still has ways to go to in order to provide incentive for forex traders to begin treating it like a tradable currency. One of the many reasons for this is the high margin requirements which most brokers have providing real liquidity in the pair.
FxPro is one of the first brokerages to provide 1:100 leverage on its MT4 platforms on the offshore renminbi pair USD/CNH. The move comes days after the People’s Bank of China (PBoC) cut its official benchmark interest rates in an effort to boost the Chinese economy.
According to research by Societe Generale, the renminbi will start behaving more like a “normal currency” in 2015, as capital flows and economic data provide arguments against further Chinese yuan appreciation.
Two-way Risk in Renminbi Trading
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A report by the French multinational bank on the Chinese currency outlined, “Given policymakers’ preference for two-way risk, we see very little reason for the PBoC to push the yuan stronger in 2015. At the same time, it will also take a much sharper economic downturn (and export recession) for the Chinese government to pursue competitive devaluation.”
Many analysts have voiced opinions that the rate cut which the PBoC announced last Friday is only the beginning of an easing cycle, however, according to analysts from Goldman Sachs, the rate cuts will have only a limited impact on the growth trajectory of the Chinese economy with the central bank rather indulge in liquidity injections.
Morgan Stanley strategists have noted that “rate cuts along with targeted credit support will help prop up the path of reform, but there will not be significant easing to put China back on the path of overstimulating the economy.”
The initial push higher in commodity prices in the aftermath of the announcement has been reversed this week with oil rallying close to 3% at one point on Friday, with prices dropping today to pre-announcement levels.
While the Chinese yuan is likely to see increased trading activity in the long run, it is still unlikely to become a traders’ favorite, primarily due to the narrow band in which it has been floating throughout the past couple of months. That said, if authorities identify substantial risks to Chinese growth, further steps by the PBoC are likely to put additional pressure on the Chinese currency next year.