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Renminbi Series: China’s forex reserve swells to highest level in 2017

China, which has the biggest foreign exchange reserve in the world, registered a fourth consecutive monthly increase in the reserve according to data released by People’s Bank of China (PBoC) today. China’s foreign exchange reserve swelled by $24 billion in the month of May pushing the total reserve to $3.0536 trillion, which is the highest for the current year. The value of reserves to the end of May is likely to have been helped along by an easing in capital outflows and a slip in the US dollar over the period.

After we changed our bearish outlook in the Yuan last month to bullish, Chinese currency rose faster than we anticipated and reached our forecasted target 6.78 per dollar. We subsequently extended our target 6.69 per dollar. While it is yet to get reached, the Chinese currency has touched as high as 6.72 per dollar in the offshore Hong Kong market. The United States approach to China has been more accommodating than we and many in the financial markets had anticipated as President Trump plans to use trade deficits as a leverage to make China help in reducing the nuclear and ballistic missile threats posed by its neighbor North Korea.

We remain bullish on the Chinese currency also due to the fact that recent weakness in the US economic dockets and slower inflation have helped pacify the concern that faster rate hikes from the US Federal Reserve could prove detrimental for the Chinese currency. The yuan is currently trading at 6.773 per dollar.

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