In a surprise move, the People’s Bank of China devalued the Chinese RMB by nearly 2%. For a currency that in the past was strictly controlled by the Chinese government, this is a significant event and illustrates the economic troubles that China currently faces. This was the largest move the currency pair has seen since 1994. For Forex Brokers this move may have been a wakeup call and made them take notice of a pair that seldom sees much volume. Since USDCNH has been offered by many more Forex Brokers over the past few years, they now must look at the pair differently from a risk management perspective. If the RMB had been free floating and the PBoC move occurred this could have been as devastating as the SNB move of January 15 of this year.
It seems a bit strange that the currency of the world’s second-largest economy had a minimal effect on Retail Forex Brokers. Most Forex Brokers didn’t comment on the move, Forex.com put out a statement that they were not affected. As the pair sees greater volatility, it will now attract the attention of the retail trader hoping to time the next big move. Retail Forex Brokers will, in turn, need to be ready with counterparties and their Liquidity Providers making sure their exposure to the pair is under control.
For the central Banks, the devaluation is another sign that China is a longs way off from having the RMB as a reserve currency. The United States has been especially critical of Beijing continually manipulating the currency to gain a better position economically. These moves are not limited to the RMB itself. The commodity currencies are also impacted like the UADUSD as well as the NZDUSD. The move may also spark more movements in the currency markets as a whole.