Chinese yuan falls, gold picks up, gold miners pick up a lot more, US stocks flat, ASX futures up 23 points

We might jump to today's last chart first - this shows the negative correlation (fancy way of saying when one instrument moves up, another moves down by a similar magnitude) between the USDCNH (rises as yuan weakens) and the Australian stock market yesterday. Investors thought the sky was falling as the Chinese government intervened to devalue its currency, which then saw some panic selling out of the yuan and back into the US dollar (which in turn pushed the Aussie dollar lower) on anticipation of further devaluation, before the yuan normalised back to where the government wanted it to be and markets calmed down. The AUDUSD had a range of about US1.7c in one day, which is a lot historically, and as selling in the Chinese yuan peaked at around 3pm-4pm, so did the selling of Australia's ASX 200 into its 4pm close. The chart tells a pretty good story of what happened, and also spells out why our futures recovered by 23 points last night as the selling eased.

Our resident FX specialist, Alex Chen, will cover off the movement in more detail today; however, in the concluding paragraph of his draft piece 'The Devaluation of Chinese Yuan – a both unexpected and inevitable movement' he points out that it is neither in the interests of China or the rest of the world to see the beginning of a downward trend in the yuan, rather this is likely a shot across the bow for US policy makers, signalling they may have allowed the US dollar to appreciate too quickly and that this is hindering Chinese growth due to the fact that the Chinese yuan is pegged to the US dollar.

So what does that mean for Australian investors? Well I'm not sure it's a bad thing at all - we want China to do as well (with its import/export values and volumes and industrial demand) as possible, and the Chinese government has enacted a heck of a lot of policy change this year to ensure that it doesn't disappoint itself and its trade partners by allowing GDP growth to slip below 7% per annum. Devaluing its currency and pressuring the US to keep a lid on interest rates is probably a good thing for the Aussie market. But naturally, uncertainty is not the friend of the equity trader and thus we witnessed a punishing 91 point sell-off and this had the effect of pushing us back down into a trend channel that I'd prefer to see the market stay out of (see today's second chart).

And to complete my chart analysis in reverse order, this takes us to today first chart to pick back up on a theme that we predicted might play out if the US dollar gold price showed signs of a small, steady recovery. The black line is US dollar spot gold (XAUUSD) and the orange line is the Market Vectors Gold Miners ETF (GDX), as trade-able on the Rivkin Trader platform. I covered off the potential trade idea on 23 July (click here) and 5 August (click here), at which time the trade was underwater. The first chart shows how quickly this situation can snap back into profit, given the leveraged effect that gold producers experience when gold-mining margins begin to look more promising.


Source: Rivkin, Saxo Bank

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How to apply for the FGG IPO

As was the case with Future Generation Investment Company (FGX), Rivkin will be working with its broking partner CMC Markets in donating the broker stamping fees to charities associated with the investment company’s cause – in this case, youth mental health and homelessness.

With this in mind, we strongly urge you to follow the following steps accurately so Rivkin can add to the philanthropic nature of this IPO.

  1. Visit http://www.futuregeninvest.com.au/Global/prospectus.pdf to download and read the prospectus
  2. IMPORTANT: complete the Broker Firm Application Form on page 87 of the prospectus, this way we can donate the stamping fees
  3. Ensure you have sufficient funds in your Rivkin Securities stockbroking account to pay for the stock
  4. Enter the Broker Code 02662
  5. Enter the Adviser Code 0001
  6. Email your application to customerservice@rivkin.com.au or post it to:

Rivkin Securities FGG Offer
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Don’t have a Rivkin Securities stockbroking account? Open one now by emailing customerservice@rivkin.com.au (your Relationship Manager will call you back and pre-fill forms etc.) or phoning 1300 748 546. Our online brokerage is $11.00 or 0.11%, $9.90 or 0.11% for SMSFs that use Rivkin Super. PLUS we go the extra mile and donate non-core earnings like broking fees from this IPO to charity. You’re doing yourselves a favour and doing those in need a favour by getting involved.

This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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