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Chinese FX reserves increase supported by USD weakness - Rabobank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Apr 8, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Stefan Koopman, Market Economist at Rabobank, notes that against all odds, Chinese FX reserves increased by USD 10bn, ending up at USD 3,213bn in March.

    Key Quotes

    “However, even though this looks good, we shouldn't get our hopes up too soon. If anything, exchange rate fluctuations in March (i.e. a weaker dollar) have increased the dollar value of reserves hold in other currency (e.g. in euro or yen). This likely means that the PBoC was still busy selling FX.

    Moreover, China's current account surplus is positive, meaning that there is an underlying inflow of capital. Therefore, outflows of Chinese firms and households who sell renminbi assets and buy foreign assets still continued in March, albeit at a milder pace than in December and January. The efforts of the PBoC in the past two months to support the value of the renminbi may have temporarily soothed fears that the currency will depreciate any further. Of course, the recent weakness in the dollar has also been of great assistance.”
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