What is USD/CNH?
USD/CNH refers to the exchange rate between the two currencies: the United States dollar (USD) and the Chinese offshore yuan (CNH).
CNH is used outside of China, particularly in international trade and financial markets. It is known as "offshore" Chinese yuan because it is more flexible for international transactions and is not subject to the same rules and regulations as "onshore" Chinese yuan (CNY), which is used for everyday transactions inside of China's borders.
While both CNH and CNY have the same value in renminbi (RMB) and originate from China, it is important to understand that they are distinct currencies.
CNH was created in 2009 when the Chinese authorities lifted restrictions on RMB trade settlements between China and Hong Kong. This was marked by the creation of the CNH, with the ‘H’ standing for Hong Kong.
The US dollar is the most traded currency in the world, held by most central banks and investment institutions, and used as the official currency in several nations, including Ecuador and El Salvador. Due to the stability and dependability of the US economy, the dollar is the currency of choice for international transactions and reserves. In addition, the dollar's dominance in international trade has significant implications for exchange rates and economic policies worldwide, and it can serve as a benchmark for nations that choose to set or peg their currencies to the dollar's value.
What affects the price of the USD/CNH pair?
Trade relations between the United States and China can have a notable impact on the USD/CNH pair. Trade tensions, tariffs, and trade agreements can affect the flow of goods and capital between the two countries, which in turn can influence the exchange rate.
Monetary policy and economic data can also affect the exchange rate of the pair. The most common example is interest rate decisions made by the two central banks, the US Federal Reserve, and the People's Bank of China (PBoC). Higher interest rates in the US could attract foreign capital and potentially strengthen the USD against the yuan.
Being a major consumer of commodities, including energy resources like oil, China can be affected by fluctuating energy prices, which in turn can impact the value of the yuan.
Investor sentiment and risk appetite can impact the demand for different currencies. For example, in times of global uncertainty, investors might seek the safety of the US dollar, leading to an appreciation of the USD. China’s Evergrande property crisis could affect the value of the Chinese yuan.
What to watch out for when trading USD/CNH?
Keep a watch on data releases and statements from influential organisations in the United States and China when trading USD/CNH. Those include:
- US Federal Reserve and PBoC Interest Rate decisions
- US and China inflation figures as shown in the Consumer Price Index (CPI)
- US and China’s Trade Balance
- US and China’s Employment Data and Gross Domestic Product (GDP)
- Commodity prices, such as Crude Oil
