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A SUDDEN CRASH IN THE CHINESE STOCK MARKET AND THE EFFECTS ON CURRENCY MARKET


6:00 PM Tuesday, January 12, 2016 (EST) Time in New York
"Markets Begin Year With a Thud"-this was the front page head line of The Wall Street Journal, January 5, 2016. Genuinely, it was a frustrating time for the traders at the very beginning of a new year, when the stock market had a big crash in the Asian session. 

Whatever happen later has no value because market reflects what the trader perceive. It was a time when the traders perceive that the Chinese economy may be struggling to shift to a new economic growth model. The perception was logical under the current economic scenario of China.

However, some economists opined that China is a most potential economy of the world and cannot be collapse overnight.They added that China has so many tools to use to boost their economy. 

My aim of writing this post is to explain the effects of Chinese stock market crash in currency market.The most affected currencies by this global event were the currencies that have ties with the commodity market.Let see how the major currency pairs were affected by this occurrence. 

AUD/USD currency pair was greatly effected by the Chinese stock market crash, which was paced by the sentiment that the Chinese Economy is about to collapse. The sensitivity of Australian dollar towards the Chinese economy is very logical because China is an import partner of Australia. China imports a large amount of commodities from Australia, which are primarily used by the industrial sector. 

Australian economy is greatly depends on the commodities. This negative news about Chinese economy had major effects on the commodities imported by the Chinese economy e.g. Coal and Copper. Because of the downward movement of the commodity markets, that produced and exported by Australia, Australian dollar also had a downward movement. Above illustration shows how Australian Dollar became bearish against US Dollar in response to the Chinese economic collapse.

New Zealand is the major exporter of dairy products to most of the Asian countries. China is a big market of the dairy products exported by Australia. As a result, we can see in the above illustration how AUD/USD currency pair fall, concerning the Chinese economic collapse issue. We can see Australian dollar fall more than 350 pips.

Oil is the blood of modern civilization. Canadian economy is greatly depends on the oil exports, and United States is the largest oil consumer of the world. Because of the Chinese economic collapse issue the oil price dramatically fall because of the fall in demand concern. In above illustration we can see USD/CAD currency pair went up for about 400 pips because of the Chinese economic collapse.

In bottom line, the currencies that are depended on the commodity market greatly affected by the Chinese economic collapse issue. This is because China is the second strongest economy of the world, and it import huge amount of commodities to run its industrial and manufacturing sectors. Its consumer market is also big enough as it has a large number of mouths to feed.

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