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Screenshot of a breaking news alert e-mail from Q2 2017
Expansion of Yuan trading range band should increase Yuan volatility, and bring out more Chinese retail FX traders.
China is a hot and much-sought after market for retail FX brokers (part of the reason we posited for the FXCM-Gain acquisition) — and it is likely to heat up even more.
Bloomberg News has reported, quoting UBS analysts, that Chinese authorities are likely to soon announce that they will further relax the rules regarding how the Yuan is traded. Specifically, UBS expects the People’s Bank of China (PBOC) to further expand the band in which the Yuan is allowed to float after each daily fixing, which is currently set at +/- 1%.
Even though the Yuan has continued to appreciate against the dollar and the other major currencies, it has done so with very little volatility (as per the one-year USDCNY chart below). Extending the trading band should increase trading volatility of the Yuan and, in our view, will encourage more currency trading within the Chinese market — and will bring more Chinese retail FX traders into the market.
This new move by the PBOC should come as very good news to FX brokers focused on China. We have seen the Forex industry already expanding heavily into Australia to use that country as a base of operations for Asia-Pacific, and in particular China.