It's the power of Chinese demands that has influenced the dollar...

It's the power of Chinese demands that has influenced the dollar index and how the Fed is going to drain its reserves to meet the growing use of USD.

China president, Mr xi told Obama in late October 2015 that He will not devalue its Yuan any futher. Is he a liar or there's a problem in Yuan USD fix for its on-shore and off-shore markets.

Off-shore Yuan
The growth in USD demands for overseas purposes (travel and investment) have pused USD index more than 100DXY

Chineses middle class has been growing at fast pace. They really want to live and invest in other countries like Australia, US and UK. The growth in USD is no doubt to be in greater demand that why they ban Yuan.

Asking my self a question. As an ordinary Australian worker. What purposes should I use USD for?

It's different in China where USD is widely use in both on/off shore.

The on/off shore Yuan spread is 1.3% gap. It doesn't mean there's another 1-2% correction in Yuan that could lead to equities rout. The gap is telling me that Yuan will be falling further if China doesn't control its on-shore Yuan USD fix therefore USD will keep rising.

On - Shore Yuan
There are evidences that China has capitals control in place. They are:

China has an excess FX reserves. China drained 531billions ending December 2015. It still has 3.3 trillions in place. The drain has contributed to capital outflows due to the dumping of USTs because USTs are considered as a capital leveraged margin control.

China IMF reserve position is 4.5 billions compared to previous month of 4.6 billions. China IMF Special Drawing Rights is at 10.28 billions. Those figures look small but I believe China will build up more reserves in IMF basket.

China gold reserves stand at 60.19 billions ending December 2015.

China unspend fiscal budget surplus of 55 billions in November 2015 will be used to add more upcoming projects.

Those amber reserves indicates the equities correction is too aggressive. Mr Xi was not a liar.

Take Argentina for example. Argentina devalued its perso 26.7% to the pegged USD. Argentina also bought more USTs to meet its country leverage ratio in order to avoid a default.

It's how a devaluation means to a country without a capital control.

China has just rised its on-shore Yuan in the last 2 days. This is very normal because China has been doing its Yuan USD fix almost everday.

China suspended Forex exchange trading to some foreign banks on December 2015. They were Deutsche, DBS and Standard Chartered.

They also ordered banks to limit the purchase of USD for the country institutions and enterprises but not to consumers.

It's the amount of dollar sold to clients in January cannot exceed the amount sold in December. It's one of major steps to ban the growth of USD to open a new way to Yuan Gold fix.

China has threatened to ban banks if they manipulate or snub gold benchmark.

Drain and No Drain in USTs
The FOMC board members are all confident about the next 3-4 rate hikes but they are worrying about Inflation due to oil roots which is the result of deflation and the bias between members to drain or not to drain the Treasury reserves to produce more USD.

Atlanta Fed, Richmond Fed, San Francisco Fed and other two Fed board members are welcoming more rate hikes.

Cleveland Fed said " strong USD, slow growth and diminished inflation put a restrain in future rate hikes" and " no compelling reason to shrink the balance sheet"

Chicago Fed said " FFR too quickly exceeds cost if removing accommodation too slowly"

Yellen had testified before the Congress for lots of reasons to hike rate. The one that interested me that was to drain the reserves in case of a crisis.

Have we seen any crisis. The strong USD index together with the strong gold index mean we're about to witness some corporates default both in China and US.

I am more confidence about China corporates operation than US shalers. Some companies in China are trying to pay off their bond interest payments. They are afraid that the stronger usd and the more rate increases that could affect their credit ratings.

Is Yellen having a ball to play in its RRP game. No drain means no new USD created and the monies lent to the Fed will sit there with a mere 0.25% interest in payments.

What's the heck. USTs are not an ultimate risk-free. They are rated at 5% haircut. If Yields are kept falling they're losing more if they chose to take USTs as collateral.

Chicago hasn't got a new fiscal bill to pay for its budget deficit because there is a lack of new dollars.

What will happen in the comming of US resident election in Q4 2016. Will The Congress forgive Yellen's testimony to find out there's no monies to supply the approved budget deal in December 2015 which is worth more than 1 trillion to keep the economy running to inflation.