This week I thought we might just step back and take in a few basic facts and stats for you to ponder over with your FX Strategy.

First up, people keep asking me “Why do they sometimes say Yuan and other times Renminbi?”

So to set the record straight……

The Renminbi (RMB) is the official currency of China. Colloquially this is also termed The People’s Money.

The primary unit of the Renminbi is the Yuan.

Put another way, the RMD is to the USD as the Yuan is to the one dollar bill. So they’re different but they are interchangeable. For example 500 RMB equals 500 Yuan. Just as 500 USD is the same as 500 dollars.

There you go. Easy! Now that we have that fact sorted out of more interest is the RMB currency’s Peg and recent Peg movements! The RMB has pretty much always been pegged to the USD. Since 2005 this peg has been allowed to trade in a narrow range. Last week on Thursday and Friday, the Chinese Government allowed the RMB to appreciate and was gradually re-pegged around 2% higher. There is a lot of pressure on the Chinese government to allow the RMB to appreciate and it appears from recent events at least that the pressure is working.

Next up, we have falling yields in Australia which is putting pressure on the AUD. It seems there are so many Aussies racing to put their money in the safety of their bank accounts that their banks have decided they can get away with offering a lower yield due to all the demand.

Couple this with market expectations of an official rate cut before the end of the year and our Commodity Currency is under some serious pressure.

Finally, we have seen a mighty pop in the USD against the Swiss Franc in the last few days, reversing a trend which has been in force since pre August 2010. It’s an interesting trade to ponder as while the macro environment might be pointing to continued buying support for Francs, fundamentally everything has a price. It could be that the USD after over a year of decline has finally become too cheap against the Franc and will continue its upward trend a while longer yet!

Published on 19th of August 2011
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