105. Fundamentals that Move Currencies - The Current Account

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A lesson on how trade flows are measured by the current account for active traders and investors in the forex market.

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[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

[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

[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]

i see.

[ForexFrenzy]

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