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Forex deficit as yuan鈥檚 rising hopes wane
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CHINESE banks sold more foreign currencies than they bought in August for the first time in 13 months as hopes for the yuan to appreciate waned.
Banks sold US$147.4 billion in foreign currencies in August and bought US$146.6 billion, giving a US$800 million deficit, the State Administration of Foreign Exchange, China’s foreign exchange regulator, said on its website yesterday.
The deficit, the first since July last year, fell sharply from a US$12 billion surplus in July. It was also below the average monthly surplus of US$23.58 billion in the first eight months of this year.
Economists said the data indicated Chinese individuals and companies are more willing to hold foreign currencies as the yuan still faces pressure to depreciate.
“The increase in domestic financial institutions’ foreign exchange positions has been limited despite July and August’s record trade surpluses,” said Wang Tao, chief economist of UBS China.
She said subdued expectation for a yuan appreciation “is an important factor” for this situation.
She said an unsustainable trade surplus, weak domestic economic growth, potential firming of the US dollar and capital outflow from China may pressure the yuan to weaken despite the government’s goal to internationalize the yuan.
UBS forecasts the yuan trading at 6.20 per US dollar by the year end and 6.35 by the end of next year.
On the onshore market in Shanghai, the yuan yesterday closed at 6.1461 per US dollar, weakening for a fifth consecutive day.
The Chinese currency had declined nearly 3 percent between January and March.
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