Halister News

(Bloomberg) -- Shrinkage of China’s FX reserves likely to have slowed in Feb. thanks to stabilization of yuan, better sentiment on the currency and valuation effect, analysts say.

• Reserves likely fell $44b to $3.18t in Feb., according to average est. in Bloomberg survey; would be fourth monthly drop in row, though pace moderating from -$99b in Jan.; data due today
• USD/CNY down 0.34% to 6.5540 last month
• Average CNH-CNY spread at 1 pip last month vs 417 pips in Jan.
• Dollar Index dropped 1.4% to 98.211 in Feb.

• UBS economists including Ning Zhang:
  • Capital outflows likely eased with more stable exchange rate, reflected by drop in onshore yuan spot trading volume: $245b in Feb. from $456b in Jan.
  • Exchange-rate movements likely resulted in positive valuation effect of more than $15b
  • Perhaps some downward pressure on reserves from surge in overseas tourism during Lunar New Year holidays
  • Forecasts $30-40b drop in reserves

• Zhou Hao, Singapore-based economist at Commerzbank:
  • Yuan stabilization suggests FX reserves likely less changed than previous months
  • Not so much FX purchasing activity last month, cushioning reserves and reducing capital outflows
  • Fewer working days in Feb. due to Lunar New Year holiday
  • Forecasts Feb. reserves at $3.2t

• CICC said in note last month FX reserves may rise for first time since Oct. on dollar weakness, lower trading volume and capital control measures