China’s FX reserves likely dropped in July-end; export growth expected to have improved in July

Official foreign reserves of China are likely to have turned south at the end of July. According to a Societe Generale research report, the FX reserves are expected to have dropped from USD 3,205 billion at the end of June to USD 3,180 billion at the end of July. On the other hand, the depreciation pressure on the Chinese yuan increased in July as the currency pair USD/CNY moved upwards above 6.7 for a brief period of time for the first time since October 2010.

“Hence, we also expect $15-20bn of FX intervention from the PBoC, given the currency situation”, added Societe Generale.

Meanwhile, ahead of the September’s G-20 Hangzhou Summit, the Chinese yuan is expected to stay steady against a basket of currencies, said Scotiabank in a research note. The CNY is likely to continue being in moderate depreciating pressure against the US dollar in the medium-term given that a considerable role is being played by market forces in determining the value of the yuan, stated Scotiabank.

“We expect USD/CNY to close 2016 at 6.70”, added Scotiabank.

Meanwhile, China is likely to have continued registering growth in exports in July. Data from Taiwan and Korea indicates towards a recovery led by electronics in external demand in the region, stated Societe Generale. Nonetheless, floods in southern and central China are likely to have hurt manufacturing last month. Also, shipments are expected to have been postponed.

Thus, only a marginal rebound is likely in last month’s export growth. Moreover, growth in import is also likely to have rebounded moderately, predominantly due to exports related intermediate imports. On the other hand, with weak momentum in investments, domestic demand is unlikely to have stimulated much growth in imports, noted Societe Generale.