China's consistent capital outflows likely to keep yuan under pressure

The depreciation pressure on the Chinese yuan is expected to continue throughout the remainder of 2016 due to the persistent capital outflows in July, said Scotiabank in a research report. The Ministry of Commerce’s data showed that the country’s non-financial outbound direct investment (ODI) rose sharply by 85.2 percent year-on-year USD 13.89 billion in July.

In the meantime, firms in China continued to purchase US dollars despite the continuing trade surplus. In July alone, the country’s onshore banks purchased net CNY 131.9 billion (USD 19.75 billion) of foreign currencies on behalf of their clients. This showed the lingering worries about the depreciation of yuan, stated Scotiabank.

“On the other hand, tumbling risk reversal of USD/CNH indicates fading market fears over the prospective collapse of the yuan for now”, added Scotiabank.