105. Fundamentals that Move Currencies - The Current Account

[HarukaOfficial]

So the Current account only measures transactions concerning Exports, Imports, Dividends and Aid given to other countries?

[kernelist1]

finally i know usage for what i learn at collage, looks like you have well economics base, many thanks for info's. & sorry for my bad english

[wojtek0000]

2:05 (current account deficit=weak currency) seems to contradict 3:22 (current account deficit=strong currency)

[InformedTrades]

Hi, At 3:22 what I am saying is that an argument that the Chinese currency is too weak is that they have a large current account surplus and an argument that the US Dollar is too strong is that the country has a large currenct account deficit. Best Regards, Dave

[Fullperson]

and what if lets say china is annoyed by the US and decides to wage economic war. Might it be possible the next time China wants to buy US goods to pay the US in Canadian money? (increasing demand for Canadian money and increasing supply of US dollars)?

[InformedTrades]

anything is possible but if china wants to play economic war the more likely scenario in my opinion would be that they sell large amounts of US Treasuries which they are large holders off which would put a lot of pressure on the US Dollar. Best Regards, Dave

[ForexFrenzy]

Yes, today on CNN they stated matter-of-factly how "China is a creditor to the U.S." ...

[wojtek0000]

i see.

[Fullperson]

lets say that America wants to buy something from china.

- US buys rmb to pay for Chinese goods (+rmb demand)

-The transaction works out ok and now China has a surplus of rmb (+ supply = - demand)

- All in all, it seems that + demand from the US buying the rmb should negate the - demand of the rmb from + supply of rmb that china has now

Does this scenario work out like I think?

[InformedTrades]

not quite here. When the US wants buys goods from china they sell dollars to buy the chinese currency which creates a surplus of dollars which the chinese now hold, driving the value of the dollar down and the value of the chinese currency up all else being equal. Best Regards, Dave

[hfarhaan]

Hi Dave, Do you want to make a guess as what makes a country undergo trade surplus Vs a country which undergo trade deficits???? It is "manufacturing base" unlike services which only consumes money, manufacturing produces money. US has a strong service based economy with little manufacturing based, hence is heavy on deficits, in contrast Japan and Germany have both a strong service and manufacturing base, hence inspite of strong currencies still post current account surpluses....

[hfarhaan]

Hi Dave, I think Russia has overtaken China as the biggest trade surpluse!!! It also has the highest cost of living in the world...

[InformedTrades]

Hey hfarhaan, Yes you are correct I was working off of old numbers there Russia now has the largest surplus. Thanks for pointing that out will fix it in the next version. Best Regards, Dave

[demeizer]

Hi Dave,

First of all really enjoy the videos. They help in understanding the markets and strategies. Many thanks. My question is (might seem silly but), where would we find the information on trade balances? Standard news? Some Economic news site?

Just a little lost on that :S

[2828jordan]

I like your videos a lot. I am lot weak in economics and commerce. It was a nice video but i couldnt get one thing, can you please explain if China has current account surplus how can its currency weaken, shouldnt it streangthen. Did i get it wrong?

Any ways you doing a great thing explain so many things. Keep up the good work.

[InformedTrades]

Hi 2828jordan, Thanks for the comment. Although they are strating to move away from this China controls the value of its currency. In the past many say that they have kept it artificially weak in order to stimulate their exports. So what I am saying here is not that the currency is weakening but that people say that it is too weak because of the large current account surplus and that the government should let it strengthen as a result. Best Regards, Dave