Study of trading location and changes in historical trading activity for major Chinese currency pairs: USD/CNY, USD/CNH, and USD/HKD.

China FX: A Rapid Coming of Age

Briefing Report

In its 2019 coverage of China FX trends, this Forex Datasource briefing report tracks the rapid trading volume growth in Chinese currencies across FX products and jurisdictions. It also casts a light on the sizeable number of Chinese banks acting that have become FX market participants across the globe. What follows are salient points from the report. 

Currencies covered: USD/CNY (onshore), USD/CNH (offshore), USD/HDK

FX Trading centers covered: London, New York, Singapore, Hong Kong, Tokyo, mainland China

Period: April 2016 to April 2019

  • Volume growth. The combined average daily volume (ADV) of the three Chinese FX pairs in the six covered jurisdictions has risen to an estimated US$489bn, larger than any other pair except for the three largest (EUR/USD, USD/JPY, and GBP/USD). This constitutes a 104% growth rate over the 2016 to 2019 period. 

  • Trading center activity. Most trading activity for Chinese FX pairs is spread across five trading centers, with Hong Kong concentrating the largest 2019 share (36%), followed by mainland China, Singapore, London, and New York. A type of FX pair specialization emerges among these trading centers, with some trading only one type of Chinese currency pair and other centers trading different pairs. Five of the six trading centers evaluated experienced substantial RMB volume increases. 

  • Chinese banks conducting a major global FX expansion.The number of Chinese banks participating in the BIS Triennial FX Survey rose to 66 in 2019 from 35 three years earlier. A surge of this magnitude in such a short time is very rare for any one country and particularly since the number of overall respondents decreased over the period. Six major banking groups lead China’s international expansion and there are indications suggesting that this expansion is centrally planned and global in scope.  

  • FX Products. The RMB volume gains included all FX products, with FX swaps making up 52% of all Chinese FX ADV in 2019, up from 48% in 2016. More than 66% of USDCNY FX swaps have a duration of a week or less, compared to 75% in USDHKD. The short duration of most Chinese FX derivatives and the high concentration on USD pairs makes China’s FX market access highly dependent on the good will of the New York Fed, something that suggests that China will be much more likely to exercise continued restrain when dealing with the U.S. than seriously consider using the nuclear option. 

  • PBOC’s Evolving RMB Management Policies. The People’s Bank of China (PBOC) finds itself navigating strange waters, not defending firmly the psychologically-important USDCNY7.0 level, adapting to the U.S. department of Treasury designation of China as a currency manipulator, and evaluating what new changes it may be required to adopt in terms of how it manages herd behavior that is already causing a negative USDCNY to USDCNH spread.   



Forex Datasource_China FX Pair Liquidity & Risks Ahead_2019 Presentation (pdf)