Forex market update: China sees another big fall in Forex reserves
There has been another significant fall in China’s foreign exchange reserves during September, strongly suggesting that the People’s Bank of China is continuing its intervention in the Forex markets to support the yuan.
For those contemplating their next Forex Trading Strategies the development is something to take note of. While September’s capital outflow was appreciably slower than August’s ($43bn compared to $94bn), some analysts are claiming that the actual outflows could be substantially more than the headline figure indicates.
The moves follow the devaluation of the yuan on 11th August, with the PBoC immediately taking steps to support the currency by selling down its huge stockpile. After the August outflow, China’s forex reserves now stand at a still-formidable $3.51. This is the lowest since July and a sizeable drop from the peak of almost $4tn the reserves hit in June 2014.
Zhou Hao, senior emerging markets economist at Singapore’s Commerzbank AG, said:
“As the PBoC also intervened in the forward market in the past month, the foreign reserves will likely plunge again when these forward contracts mature.”
He went on to note that Chinese residents are likely to purchase “a large amount of foreign currency in October to repay credit card bills, as overseas travel hit a new record during the October Golden Week holidays.”
This week-long holiday ends on Wednesday and, according to state media, the number of mainlanders taking foreign trips this year – and settling bills using foreign currency – is likely to be 11% higher than last year, taking the total to 4 million.
China’s huge trade surpluses resulted in the $4tn peak of 2014. Reserves have fallen by 12% since then, with the most rapid dip (2.6% in a single month) following the PBoC’s decision to devalue the yuan and adopt a more market-orientated exchange rate in August. Even so, China is still left with a mighty war chest to support its currency, should the need arise.