November 26, 2007
Chinese Yuan 12 Month Non-deliverable Forward
Here’s a chart that shows the ever-widening spread between the spot market and the 12-month non-deliverable forward contract for the Chinese Yuan. Something’s gotta give.
(CNY NDF vs Spot Spread)
Cat: | Time: 10:22 pm (utc+8)
November 27th, 2007 at 4:51 am
Chair, could you shift the Future data by 12 month and overlay it on spot prices ?
(i.e Fut(t)=close(fut(-252)) v.s. spot)
tia
November 27th, 2007 at 7:24 am
Hi CM, forgive my ignorance but could you explain the significance of this. The price of the NDF 12 months ago appears to be the same as today’s spot price so is this saying that the yuan in 12 months will be around 6.75? Thanks for your time.
November 27th, 2007 at 9:55 am
@vak: That’s a good idea but I’m sitting at the wrong machine to do it … when I get a chance later I’ll add the chart to this post, thanks.
@Cedric: Yes, exactly. Traders expect the yuan will be at 6.76 twelve months from now.
November 27th, 2007 at 1:57 pm
It seems that someone high up in the US financial decision making echelons decided that if China is not going to allow their currency to float and rise in value over time, then we’ll lower US rates and cheapen the dollar, thereby accomplishing a similar goal; forcing the yuan to appreciate, and alleviating some of the egregious trade imbalance, over time. Just a thought, seems to be the trend you’re highlighting here, with regards to the currencies.
November 27th, 2007 at 6:49 pm
Chairman - Ive gone long an RMB future on the CME. The nearest month is liquid, though the others arent. They are cash settled the business day before the third Wednesday each month, and there is a contract each month. There is therefore a reentry/rollover required each month (given that the contracts for 2+ months out are illiquid).
November 27th, 2007 at 9:02 pm
Rod: Well, best of luck… short-term trading is a tricky business. :-)
November 28th, 2007 at 6:23 am
Canary(CM can answer this one too),
If China is not going to allow their currency to float and still peg against the USD, then the cheapening of the dollar will in turn lower the value of the Yuan too, which won’t do much for the trade balance. Isn’t this rational correct? I’m not fully understanding Canary’s assertion that the lowering of rates and cheapening of the dollar will force to Yuan to appreciate since it’s pegged to the USD.
What am I missing?
TIA
November 28th, 2007 at 9:59 am
amir: It isn’t a fixed peg, it’s more like a “floating peg” if you see what I mean … the yuan is appreciating at a very slow but steady rate.
November 29th, 2007 at 3:43 am
Chair: i haven’t touched MS since Highschool, so pardon if i’m mistaken: can’t you just write a function like indicator=close(-252,ndf)
and overlay it as an indicator ?
November 29th, 2007 at 9:11 am
Right it’s a floating peg between the dollar and the yuna.
Also if the dollar falls enough it increases pressure on the Chinese government to consider adjusting the peg…otherwise the dollars they are getting for their yuan are increasingly worth less. It’s an odd sort of squeeze game “someone” is playing.
November 29th, 2007 at 10:18 am
@vak: I’ve never written a Metastock indicator — it’s probably easy to do, I just don’t know how. I’ll just copy and paste the data into excel when I get a chance.
@contracan: I don’t think there is a “someone” playing … it’s just the market at work.