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China’s yuan strengthens as trade surplus hits US$72 billion in November amid robust export growth
Published: 6:45pm, 8 Dec, 2021
China’s yuan strengthened against the US dollar on Wednesday, reaching its firmest level since May 2018, although analysts say depreciation risks are rising.
In late session trading, the onshore yuan hit 6.3477 against the US dollar, gaining from 6.3515 in the morning session, while the offshore yuan traded at 6.3459 against the American currency.
A lower yuan exchange rate figure means it takes fewer yuan to purchase one US dollar, indicating a stronger Chinese currency.
Meanwhile, China’s foreign reserves rose to US$3.222 trillion at the end of November, up US$4.8 billion from a month earlier, according to data from the State Administration of Foreign Exchange (SAFE) on Tuesday.
Trading in China’s foreign exchange market remained brisk and the flow of cross-border capital was largely stable last month, said Wang Chunying, deputy director and spokeswoman of the exchange regulator.
“Under the combined effect of exchange rate conversion and asset price changes, the size of the foreign exchange reserves increased during the month,” Wang said.
Analysts attributed the strength of the yuan and the growth of foreign reserves to China’s large trade surplus, which hit US$72 billion in November amid robust export growth this year. The dollar-denominated value of exports increased by 22 per cent year on year last month, the second highest monthly rise of 2021.
“Northbound funds [flowing into China’s equity markets] continued to maintain a net inflow, with a total inflow of 18.49 billion yuan in November. This has supported the stability of China’s foreign exchange reserves,” said Wen Bin, chief analyst at China Minsheng Bank, in a note today.
The outlook is still biased to the downside due to the slower growth outlook and Fed tighteningCommerzbank
China’s trade surplus could soon exceed US$600 billion, the highest level since 2015, analysts at Commerzbank said in a note on Wednesday.
“The Chinese currency should benefit from the decent surplus for now,” said Commerzbank. “However, the outlook is still biased to the downside due to the slower growth outlook and Fed tightening.”
In two days of testimony to US Congress last week, US Federal Reserve chairman Jerome Powell said the central bank is open to doubling the pace of its asset purchasing taper to $30 billion from $15 billion.
China’s export growth, the key driver of the economy this year, is expected to slow as many countries gradually resume normal supply chain operations following the easing of pandemic-related restrictions.
“A strong dollar due to policy tightening is likely to be the main theme in the coming years, while China has much smaller room to manoeuvre which implies a downside risk for the Chinese currency,” Commerzbank said.
In particular, divergent monetary policy between China, the US and other developing countries could introduce volatility in the yuan exchange rate, triggering fund outflows.
As Beijing prefers the yuan to be trading within a stable range to cushion the blow from an economic slowdown, rising currency volatility would make it harder for China to strike a balance between growth, debt and leverage.
Lu Lei, deputy head of SAFE, called for “more effective” monetary coordination with developed countries last week, while the PBOC said in its third quarter monetary policy report in November that it would adopt various measures, including making the yuan more flexible, to respond to Federal Reserve tapering.
In contrast to the US, China is at the start of an easing cycle. The PBOC said on Monday it would cut the reserve requirement ratio for major commercial banks by 0.5 percentage points, releasing 1.2 trillion yuan worth of long-term liquidity into the interbank system on December 15, with an aim of supporting the Chinese economy in the face of growing headwinds.
“It is also important to note China’s policy turn at a time when most major central banks, especially the Fed, will start tapering and, possibly, hike rates at a later stage,” Natixis said in a research note on Tuesday.
“The divergence in monetary policies may entice portfolio outflows from China and thus revert the so-far strong performance of the [yuan].”
www.scmp.com
- China’s foreign reserves rose to US$3.222 trillion at the end of November, up US$4.8 billion from a month earlier
- The dollar-denominated value of exports increased by 22 per cent on year last month, the second highest rise of 2021
Published: 6:45pm, 8 Dec, 2021
China’s yuan strengthened against the US dollar on Wednesday, reaching its firmest level since May 2018, although analysts say depreciation risks are rising.
In late session trading, the onshore yuan hit 6.3477 against the US dollar, gaining from 6.3515 in the morning session, while the offshore yuan traded at 6.3459 against the American currency.
A lower yuan exchange rate figure means it takes fewer yuan to purchase one US dollar, indicating a stronger Chinese currency.
Meanwhile, China’s foreign reserves rose to US$3.222 trillion at the end of November, up US$4.8 billion from a month earlier, according to data from the State Administration of Foreign Exchange (SAFE) on Tuesday.
Trading in China’s foreign exchange market remained brisk and the flow of cross-border capital was largely stable last month, said Wang Chunying, deputy director and spokeswoman of the exchange regulator.
“Under the combined effect of exchange rate conversion and asset price changes, the size of the foreign exchange reserves increased during the month,” Wang said.
Analysts attributed the strength of the yuan and the growth of foreign reserves to China’s large trade surplus, which hit US$72 billion in November amid robust export growth this year. The dollar-denominated value of exports increased by 22 per cent year on year last month, the second highest monthly rise of 2021.
“Northbound funds [flowing into China’s equity markets] continued to maintain a net inflow, with a total inflow of 18.49 billion yuan in November. This has supported the stability of China’s foreign exchange reserves,” said Wen Bin, chief analyst at China Minsheng Bank, in a note today.
The outlook is still biased to the downside due to the slower growth outlook and Fed tighteningCommerzbank
China’s trade surplus could soon exceed US$600 billion, the highest level since 2015, analysts at Commerzbank said in a note on Wednesday.
“The Chinese currency should benefit from the decent surplus for now,” said Commerzbank. “However, the outlook is still biased to the downside due to the slower growth outlook and Fed tightening.”
In two days of testimony to US Congress last week, US Federal Reserve chairman Jerome Powell said the central bank is open to doubling the pace of its asset purchasing taper to $30 billion from $15 billion.
China’s export growth, the key driver of the economy this year, is expected to slow as many countries gradually resume normal supply chain operations following the easing of pandemic-related restrictions.
“A strong dollar due to policy tightening is likely to be the main theme in the coming years, while China has much smaller room to manoeuvre which implies a downside risk for the Chinese currency,” Commerzbank said.
In particular, divergent monetary policy between China, the US and other developing countries could introduce volatility in the yuan exchange rate, triggering fund outflows.
As Beijing prefers the yuan to be trading within a stable range to cushion the blow from an economic slowdown, rising currency volatility would make it harder for China to strike a balance between growth, debt and leverage.
Lu Lei, deputy head of SAFE, called for “more effective” monetary coordination with developed countries last week, while the PBOC said in its third quarter monetary policy report in November that it would adopt various measures, including making the yuan more flexible, to respond to Federal Reserve tapering.
In contrast to the US, China is at the start of an easing cycle. The PBOC said on Monday it would cut the reserve requirement ratio for major commercial banks by 0.5 percentage points, releasing 1.2 trillion yuan worth of long-term liquidity into the interbank system on December 15, with an aim of supporting the Chinese economy in the face of growing headwinds.
“It is also important to note China’s policy turn at a time when most major central banks, especially the Fed, will start tapering and, possibly, hike rates at a later stage,” Natixis said in a research note on Tuesday.
“The divergence in monetary policies may entice portfolio outflows from China and thus revert the so-far strong performance of the [yuan].”
China’s yuan strengthens as trade surplus hits US$72 billion in November
Analysts have attributed the strength of the yuan and the growth of foreign reserves to China’s large trade surplus, which hit US$72 billion in November amid robust export growth.
www.scmp.com
