I feel like I should go 20x leverage on CNYUSD

I mean, look at this.


Not currency related, but you know how long guys have been staring at this chart wanting to do the same thing? Those unlucky enough to pull the trigger didn’t live to tell about it.


i wish i knew about this whole chart thing…

Going short USD vs CNY is definitely a sensible idea if you can do it. Doing it at 20x leverage seems pretty crazy, although I get why you say it.

I’m not really going to do it. It’s difficult to buy CNY as a retail investor and compliance people will harass me if I do it at work. However, I think it is an interesting investment idea - that China is controlling currency appreciation in a very stable and predictable manner. More predictable than natural gas and more predictable than any other unpegged currency.

If you can get high quality, low-duration chinese fixed income assets (like state-owned-enterprises that have a high likelihood of being some politico’s pet project), that would be my way to play it.

The bond would be an asset tied to the currency. The short duration would protect somewhat against an interest rate rise or inflation, and the state-owned-enterprise would mean that it’s likely to get its assets re-filled by the government if it gets into trouble, thereby reducing default risk.

I don’t know how to access that, though. Any ideas?

(btw, I recognized that 20x was intended as hyperbole… at least I hope it was. :wink: )

Yeah I don’t know how I would do that. The other thing is leverage. 1x participation has limited upside. The trade would need to be like 5x or 10x to be worthwhile.

There are non-deliverable CNYUSD forwards, aren’t there? Or do they have really bad roll characteristics?

(I’m embarassed that I don’t actually know this yet. It seems like the sort of thing I should know about, but I just haven’t gotten there yet.)

CNYUSD is non-deliverable, so you can’t trade it on Forex.com or some place like that. However, if you are an institutional investor, you can probably trade the NDFs. The roll is slightly negative, but pretty small; CNY 1 year NDF is trading at 0.3% premium to spot (so if exchange rates are constant for 1 year, you lose 0.3% if you buy the 1 year NDF). Compare that to the appreciation of CNY in 2011: 4.7% for the year. Keep in mind that this is the “controlled” appreciation shown by the graph. So, if we assume that China will maintain their current economic policy, the 2012 return should be similar to 2011. 1.047^2 = 1.096 is not an unreasonable change for two years. So, it’s hard to imagine that China is at the limit of this policy.