I know nothing about forex, but I would think that the .3% daily trading range that China will allow on the CNY will guarantee a huge move vs the USD over time. To the forex traders out there, do you agree? And if so, what's the best way to take advantage of such a move? (Not that I would, since I'm a pure equities trader, though I am curious as to what you all think).
Best guesses put the undervaluation at 15-25%, that's not a huge move over time. You can plow USD into RMB at any asian bank, but you have to remember the cost of capital... what if it takes 5-10 years for a revaluation of that amount to occur?
I don't know much about forex, treasury and gold either. But I went out today and long a couple of Dec 05 Yen and Euro contracts. I'll probably long Gold, GBP and short 10 year treasury too. What do you think of these trades? Do you think they are going to make any significant moves by year end because of the CNY re-evaluation?
That .3% daily range cannot be added to the previous days close. It must trade in that range every day, so if its up .3% one day next day will be down. Also China dictates the movement.
The first thing is China has yet to permit free exchange in capital account. That is a firewall against excessive speculative money rushing into China. In the new system of China's forex regime, CNY's value is set to refer to a basket of currencies not peg to it. No one knows what the currencies are in the basket and how China refers to the basket. It gives China a strong freedom to intervene CNY's value if needed. The CNY's daily fluctuation range -- 0.3%, is for USD/CNY. It means CNY is still semi-peg on USD even after the reform of forex regime.
No. The new rules says the close of today's rate, for example USD/CNY, would be the median rate for tomorrow. So the 0.3% change can be added up day by day, but sure the real daily fluctuation all depends on whether China will intervene the market.
China is a bunch of anal-retentive/obsessive currency traders. they need to just let it loose and let it swing, baby, let it swing.