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China: The New Global Market Determinant

There is no doubt that global financial market is in crisis and much of these is blamed on China’s unpredictable economic policies, but with China struggling to adapt a new growth model that would position Yuan as global
currency and attract investors without relying on its popular manufacturing as it’s trying to move from investment and manufacturing dependent economy to consumption and services.

Therefore, it is not surprising that China is constantly making adjustments that sometimes create doubt and further plunge global economy because of its size. To China it is only doing what is best for its economy, while global investors are blaming China for the crisis since its unexpected currency devaluation on August 11th, 2015 that wiped about $4 trillion from global equity market.

It is also nimble to note that the effect of China economic policies on global financial market outweigh plunging oil prices and damped global growth forecast for 2016. This is why it is imperative for foreign exchange (forex) traders, especially technical traders to pay more attention to China economic direction in 2016.

For instance, China’s foreign reserves is declining because the People’s Bank of China is selling dollars to prop up the Yuan. According to a report released on the apex bank website, currency hoard dropped by $108.3 billion to $3.33 trillion from $3.44 trillion in December, 2015.

This further increased demand for Yen and weakened Aussie dollar because Australia depend on China for her exports but with cheaper yuan exports revenue becomes smaller. This is the reason why EU/AUD pair is seen rising
this week, caution is advised trading euro pairs because of the current divergence between economic data and market direction. This bring us back to China, the new global market determinant.

Guest post by Samed Olukoya, the owner of Investors King.