When the Chinese do something, they do it big. And so it shouldn’t surprise anyone in the FX sector that when volatility returns to China’s financial markets, it does so in a very big way.
China’s Yuan currency saw its biggest one day drop on Tuesday since 2008, with the USDCNH trading down 0.5% to 6.20. Alongside the Yuan drop, Chinese equity markets plummeted with the Shanghai Composite Index trading off 5.4% for the day, its biggest one day drop since 2009.
So what happened?
Well to begin with capital markets are generally very nervous, with global crude oil prices in freefall, sitting at five year lows. News that slowing Chinese growth (part of the reason oil is falling) initially sent Chinese shares soaring last week, as investors expected more stimulus to be pumped into the economy.
But that all reversed big-time on Tuesday.
First, Chinese regulators introduced some new rules making it harder for investors to use bonds as collateral for margin and loans, leading to a selloff in the Chinese bond markets. That selloff then broadened into the FX market and the Chinese stock market.
The upside? Well if you’re a Forex Broker serving the Chinese market, you’re likely seen a large spike in trading volumes, as the volatility leads to increased trading.