The Chinese Government will be implementing more stringent policies on FOREX derivatives and trading of stock indexes to calm nervous markets. There are many concerns right now over the wellbeing of China’s economy.
Beijing is pushing through with measures that have increased concerns on overseas investors regarding the commitment of China to carry out reforms and deal with financial volatility. The government said it will focus on immediate stability rather than longer-term market liberalization
People’s Bank of China (PBOC) officials have fixed robust trading midpoints daily for the Yuan. Likewise, the central bank has intervened in derivative markets.
The PBOC will set aside reserves for purchases of all currency derivatives from October, according to an international media organization. This can make it more expensive to wager on further devaluation of the local currency.
Said move spreads out the scope of a similar document wherein the PBOC said it will require banks to maintain reserves for currency trading to stop speculations and volatility.
Some traders say extensive interference in the spot market and forthcoming requirements in trading hamper China’s efforts in currency reforms.
Stakeholders are concerned that efforts of Beijing to hold up the Chinese currency will drain the country’s huge FOREX reserves.
For the FOREX market, reserve ratios will be established at 20 percent of the small value of forwards and swap contracts and set at 10 percent of minimal value of principal when it comes to options.
If this reduces pressure of depreciation, this can lessen the need for the central bank to sell foreign currency to purchase Yuan.
The Yuan weakened 2.6 percent last month which is the worst month so far. This heightened concerns that the deteriorating Yuan can bring about capital flight.
Deutsche Bank AG, which was charged last May for FOREX market rigging, is suspected of another case of currency fixing. This time the affected currencies are from Argentina, Brazil and Russia. This report came from classified sources but a bank spokesperson did not give any statement.
Probes are being conducted to determine which banks filed to settle previous FOREX-related cases.
Banks in Moscow and some other countries are under watch for influencing benchmark rates of currencies in emerging markets. The Russian ruble was also sought out by the Commodity Futures Trading Commission (CFTC) during past settlements including one that involved Barclay’s Bank which did refused to comment on said issue.
The CFTC examined a particular rate for the ruble according to traders’ submissions during resolutions of foreign exchange rigging investigations in 2014. The banks concerned were UBS, JP Morgan, HSBC, RBS, and Citigroup.
The Commission focused on a benchmark that the Emerging Markets Trade Association (EMTA) and CME Group
Incorporated created during the 1889s. Since then, it has been utilized as reference for derivatives. The CME Group operates the biggest futures exchange in the whole world.
CFTC also said Barclays tried to manipulate this benchmark during the #400 million resolution made this year. The bank’s unlawful activity was done by traders in several places which included Moscow.
Prosecutors still expect these banks to cooperate with the investigation for immediate resolution of pending cases.
The US dollar dropped versus the common currency and low-yield euro as investors refused to bet against currencies often used to fund uncertain carry trades.
With carry trades, traders sell low-yielding currencies to buy riskier but higher-yielding notes for higher profits. Investors are likely to avoid unstable assets once instability happens in financial markets worldwide and stocks collapse.
The FTS Euro First 300 shares index registered its worst performance for the month since August of 2011 incurring a nine percent loss as Fed policymakers appear inclined to increase interest rates soon.
Japanese and Chinese stock markets were down along with Wall Street indexes (around 0.80 percent during late trading in New York.
The US dollar index declined 0.16 percent which was close to 1.5 percent lower in August although it was above a seven-month trough of 92.621 one week ago as prospects of a China slowdown sent stocks plummeting.
USD gave up 0.13 percent to 121.23 Japanese yen and went down around two percent for this month but still above the seven-month decrease of 116.15 one week ago. The euro went up 0.3 percent to $1.1225 which is below the high of $1.1715 last week although it remains 2.4 percent up in August month.
The US dollar touched 0.44 percent versus the Swiss franc (0.9672 CHF) and under 0.31 percent against the UK pound sterling at $1.534.
USD and CAD pair touched 1.3298 during but the pair later consolidated at 1.3296 and climbed 0.73 percent.
The pair found support at 1.3163 which was a high in August 26.
A market survey released on Sunday revealed the strong US currency is pushing Aussie gold production and protecting local traders from adverse consequences of a worldwide sell-off in gold bars.
Production in Australia increased by four percent during Q2 to 72 tons compared to the previous quarter which is just second to China.
The price of bullion in AUD terms has been relatively stable since the beginning of this year. Devaluation of the Aussie dollar is turning out to be a stroke of luck for local gold producers notwithstanding reduced gold prices in USD.
The Aussie dollar averaged roughly $1, 532 (Australian) for every ounce even if average price of the yellow metal was US$1, 192 per ounce in the second quarter.
Gold output of Australia until June 30 went up one percent to 285 tons which is worth approximately US$10.05 billion based on today’s rates.
China could have produced around 450 tons in 2014.
The impending interest rate hike has reduced the allure of non-interest assets which include precious metals. Hence, gold recorded its most significant decline for the week in five weeks following release of economic statistics from the US which pointed to steadier growth.
Nonetheless, Aussie gold was still impressive.
A CEO from a leading international mining firm said his company allotted almost $574 million to procure mines in this country in 2015. He reported an increase of 112 percent profit for FY 2015.
The balance sheet remains stronger while the price of gold at $100 higher (AUD) per ounce was higher compared to 2014.
The Venezuelan Central Bank will circulate paper money in higher denominations in 2016 as unrestrained inflation reduced the value of a 100-bolivar bill to only 14 cents in the country’s black market.
According to an unidentified senior official, the new notes (500 and 1,000 bolivars) may be issued after congressional polls in December 6.
Venezuelan citizens carry bundles of paper notes in bags instead of wallets due to rising inflation and decreasing currency. The situation is expected to get worse because inflation is the fastest globally. The same official said it can even end at 150 percent this year.
The government does not regular economic figures anymore. This was stopped last December after it reported that inflation went up to 69 percent.
Venezuela does not plan to replace the existing tri-level exchange rate system soon as the government plans to increase dollar revenues by developing mining and petrochemical projects and reducing its reliance on oil.
One USD is valued 725 bolivars in black market outlets. Venezuelans turn to these markets if they fail to obtain government approval to buy foreign currency at official exchange rates which are 6.3, 12.8 and 200 respectively.
The country has a minimum wage of 7,422 bolivars monthly which equates to roughly $37 at the lowest legal exchange rate. It is only pegged $10 at black market rates.
A combined exchange rate is not possible until the economy is diversified and local production rises.
Venezuela’s foreign reserves dropped to a low of $15.4 billion (last 12 years) last July 27.