Futures market calls a 2.7% appreciation in China's currency

03/09/2010 9:30 am EST


Jim Jubak

Founder and Editor, JubakPicks.com

Who knew?

That there’s a renminbi futures market even though the Chinese government strictly limits such trading in its currency. Hedge funds and other traders use the NDF market—that stands for non-deliverable forwards—to hedge against or to speculate on moves in the renminbi.

Why is this more than a curiosity? Because just as prices on the fed futures market tell you the odds that traders are putting on a move up or down in U.S. interest rates, the renminbi NDF market tells us what the consensus is on how much the Chinese currency will appreciate this year.

And right now traders on the NDF market are betting that China will end its policy of pegging the price of its currency to the U.S. dollar this year and pricing in a 2.7% appreciation in the renminbi against the dollar by the end of 2010, according to Bloomberg.

Yesterday the official exchange rate stood at 6.8264 Yuan to the dollar. (Yes, the name of China’s currency can be confusing. Technically there is a difference between renminbi and Yuan but for our purposes here the terms are interchangeable.) On the NDF market the price hit 6.6262 yesterday. That was the highest since February 1.
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