China Foreign Reserves Seen Slipping Again With Dollar Strength
(Bloomberg) -- China’s foreign reserves probably dipped in April, and the pace of decline may accelerate from the second half as expectations for a Fed rate increase bolsters the dollar, according to three analysts.
- Reserves probably fell $8.6b to $3.204t in April from the prior month, according to the median est. of economists in a Bloomberg survey, with data due May 7. Reserves in March saw first m/m gain in five months
- There’s a risk that the reserves may fall below $3t in the second half, according to Nie Wen, an economist at Huabao Trust
- Onshore yuan fell 0.47% in April
- Natixis (Iris Pang, Greater China economist)
- Capital outflow in April may be offset by a strong trade surplus, curbing FX reserve decline
- Yuan may come under more pressure in May and June, given rising market expectations of Fed hike in June
- Japan could adopt more easing in June; uncertainty and market volatility will pick up with BOJ June meeting scheduled close to Fed’s
- China FX reserve may have fallen to $3208b in April, from $3212.6b in March
- OCBC (Tommy Xie, economist)
- Less demand for dollar with more confidence in yuan eased capital outflows in April
- Yuan versus basket of currencies was steady in April compared to March, so impact from valuation effect should be limited
- Stabilization of FX reserves may remain for just a short period, as any potential dollar rally in 2H, together with yuan depreciation pressure, will lead to more capital outflows
- Huabao Trust (Nie Wen, economist)
- Estimates EUR, JPY assets account for 20-30% of China FX reserves; gains by the two currencies last month would have contributed to China’s reserves
- Chinese companies may not have increased dollar holdings in April given the softer dollar then
- No visible FX intervention by PBOC in the spot market last month; exchange rate remains largely stable through administrative tools
- Forecasts April FX reserves to increase by $20b
- RBS (Harrison Hu, Greater China economist)
- CNH-CNY spread widened in April, suggesting pressure on capital outflow increased
- 2016 exports may grow 5% y/y; Mild domestic recovery on track and yuan depreciation in REER terms is supportive of exports
- Imports to improve in 2Q and 3Q because of stable domestic demand fueled by recovery in property sector
- Forecasts FX reserves to drop by $10b last month
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Harrison Hu (Royal Bank of Scotland Group PLC)
Iris Pang (Natixis SA)
Nie Wen (Huabao Trust Co Ltd)
Tommy Xie (Oversea-Chinese Banking Corp Ltd)
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