China: Capital flow crack-down - AmpGFX

According to Greg Gibbs, Director at Amplifying Global FX Capital, there may well be another factor contributing to the correction in the USD this year which is related to China. 

Key Quotes

“In conjunction with a corrective fall in the USD so far this year, US Treasury yields have fallen significantly, Bitcoin has collapsed, CNY has been volatile, and commodity futures prices have jumped.”

“All of these moves may relate to Chinese government efforts to clamp down on avenues for capital outflow.  After a period of rapid rise in the USD, US yields, and a weaker CNY since the 8 November election, these markets may also have been vulnerable to corrective price action early this year.”

“The collapse in Bitcoin may reflect Chinese government efforts to monitor Chinese Bitcoin exchanges to discourage its use as an avenue to exit CNY and avoid capital controls.  Treasury bonds may have recovered to some extent since tightening capital controls reduces China’s need to sell FX reserves (including USA Treasury bonds) to defend its currency. The resurgent iron ore, steel, and coal futures prices traded on Chinese exchanges may reflect efforts by Chinese traders to exit CNY exposure in response to tighter capital control enforcement.”