How Does Chinas Economic Direction Affect Forex Trading

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China is now Japan's largest importer, exceeding the United States. In effect, Chinese growth fuels the recovery in Japan and for all of Southeast Asia. As China maintains a surplus of exports to imports, it has a huge foreign exchange cash reserve of U.S. dollars and is now reinvesting those dollars into $145 billion of U.S. debt instruments. If, or when, the Chinese economy slows down, it will also impact the rest of the world's currencies and economies.

The impact of Chinese growth on the currency markets is illustrated in the performance of the Australian dollar known as the Aussie. The currency pair AUD/USD had a strong uptrend paralleling Chinese growth and demand for Australian resources. But the trend broke and the perception of a slowdown in China pushed the momentum down for the AUD/USD. The Australian dollar fell to 71.58 U.S. cents its lowest since November 18, after Chinese Premier Wen Jiabao told Reuters that China was committed to forceful measures to cool its dangerously fast-growing economy. That threatened to reduce demand for commodities and sent copper prices spiraling down 5 percent. Aluminum and nickel lost nearly 6 percent, while silver and platinum fell 5 percent. There can be no doubt that the Australian dollar is greatly affected by prospects in China.

http://www.forbes.com/ home/newswire/2004/ 04/29/rtr1352164.html

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