Def Do you know any good method to hedge RMB/HKD exchange risk ? I am a mainland chinese and trade HSI , I want to hedge HKD within my IB account against RMB, but still can not figure out a good method. When RMB goes up, HKD does not follow. This foreign exchange risk has been a concern to me over a year. If I can hedge this risk, I plan to at least double the trading size of HSI.
People think the Yuan will explode. But the Yuan's value is based on its ridiculously unfair and artificial peg to the U.S. Dollar. Remove the peg COMPLETELY, and we will see the real goods. Just creating a percentage volatility to the peg and link it to a basket of world currencies doesn't "cut the cheese." However, they are taking the wise and prudent step to unpeg in stages. That's what the market expects, hence, the market's trivial reaction to this. Only when the Yuan is truly floating we will know its real value. That's why currency traders have been hedging all over the place with currency baskets.
Chinese government will only proceed very cautiously, free floating will not happen in the near future, one reason is that the chinese banks & companies do not have expertise to handle the currency trading. 2% appreciation per half year till altogether 10% rise. this is acceptable, at least to my non-RMB trading account.
How can you tell? The COT in JPY futures shows record speculative shorts in CME's JPY/USD (futures and futures+options). It is reasonable to say that the positions in the OTC market are similar. If so, where are the speculative bets long Yen? As far as I can tell, everyone is short Yen: the futures speculators (ie funds), the BOJ (it created $320bn of counterfeit money -the largest amount of money ever created in history- to buy USD/JPY in late 2003-1Q04 and at some point it has to unwind this HUGE bet)
I disagree....a global macro hedge fund who puts on bets of a yard or more is not the same as a local punting on the JPY...I have first hand knowledge that this has been a top 5 bet of these guys this year..
I'm not an expert on global macro hedge funds and how they place their bets, so maybe you -or anyone else familiar with the subject- could enlighten me. I know long Yen/USD (also as proxy for Yuan appreciation) was supposed to be the big play for 2005. Ray Dalio had a nice interview recently in Barron's. But look at price action. Yen touched almost 2yr lows last week (USD/JPY came a few ticks close to 114) and last 40 days it's in a non-stop slide lower. It's been weaker than most other currencies. So how are all these hedge funds doing? Are they sitting on big losses and toughing it out? Have they bailed? PS: I am bullish on Yen and actually have a small long position, but I also remind myself that BOJ has a criminal record of destroying the Yen's value. But also that they need to unwind those $320bn they printed in 1Q2004 at some point.
Don't get me wrong ..I agree with you on that.. I think a major reason for this whole upmove in the dollar has been the global macro guys cutting their structural positions...but this has been going on for awhile now..as far as the JPY is concerned the long liquidation has been exacerbated as not only are they a favorite structural long (as they run a large CA surplus) but there was the whole CNY reval play as well..but you have to remember most of the HF/research community was looking for this to happen much earlier hence the reason you have seen USD/JPY outperform....my point with the IMM data is that it is a gauge of much shorter-term money and doesn't really give an accurate gauge on position player activity the barclays group has G Macro guys doing alright this year @+1.59% YTD...worth noting that the currency specific CTA index is down .98%
a key factor here is how much interest does the yuan pay? what is the interest rate on the renminbi? if you are short USD/CNY, will you earn interest or have to pay interest? anyone know?