Slower Economic Growth in China

The current drop in the value of the Euro, lower crude oil futures, and slower economic growth in China appear to be intertwined. Forex trading of both the Euro and the Yuan may be affected as well as either the Swiss franc or the dollar as a safe haven currency. China’s stunning growth over the last decades has been dependent upon its ability to sell less expensive products to the rest of the world, especially the economies of Europe and North America. If the largest economy in the world, the EU, is faltering because of sovereign debt issues then is not surprising that purchases of imported items from China may fall and Chinese industrial production may falter as well. The Forex trader will want to follow this situation closely in order to profit from swings in the prices of the Yuan, Euro, US dollar, Swiss franc, and other currencies as a result of these events.

The Yuan exchange rate could vary if there turns out to be a real drop in industrial output in mainland China. It could also affect investment flow into the Asian giant. Much of the strength of the Chinese economy is still based upon the inflow of foreign investment. A redirection of capital could mean less support for the Yuan. On the other hand the Yuan has been kept at an artificially low rate for years. China has simply followed the model set first by Japan and then Taiwan. These nations follow a monetary policy of buying dollars with their currency in order to force the dollar up and their currency down. This has lead to stronger exports as the dollar, and Euro, are kept artificially high while the currencies of the exporting countries, China, Japan, Taiwan, and others are kept low and competitive. Will China strive to control its currency rates even more in response to slower economic growth in China?

In Forex trading the Euro traders watch the debt situation on the continent. What they learn will, however, be of use in trading currencies other than the Euro. When a consumer economy such as the European Union experiences an economic decline its citizens purchase less. This news is pertinent to exporting nations such as those in Asia. Although short term fluctuations are typically based upon short term news the long term picture is that the world has not emerged from the recession and there remains the strong possibility of a very slow and economically painful path back to economic health. Successful traders will keep an eye on the long term picture even when trading the minute by minute variations in the prices of the Euro, Yen, USD, Swiss franc, and British Pound as well as the still semi controlled Chinese Yuan. The Chinese have just recently let the Yuan start to rise with the market. Slower economic growth in China could possible change the minds of those setting monetary policy on the mainland. Traders will be wise to watch the actions of Chinese policy makers to profit from currency trading in response to slower economic growth in China.