Chinese Yuan Weakens As Forex Reserves, Exports Unexpectedly Rise

The Chinese yuan is weakening to kick off the trading week as the nation’s foreign exchange reserves and exports unexpectedly rose in May. With the balance of trade numbers being higher than what the market had anticipated, it might play a role in the US-China trade war, which is dragging out and could linger into the holiday season.

According to the People’s Bank of China (PBOC), Beijing’s foreign exchange reserves increased by $6 billion to $3.101 trillion last month. This is up from $3.095 trillion in April and the market had penciled in a decline of $5 billion to $3.090 trillion.
Officials explained the unexpected jump by alluding to valuation effects and adjustments in asset prices, despite the trade spat with the world’s largest economy escalating to another level.
As the yuan approaches the important 7 threshold against the US dollar, investors are anticipating that the country’s top forex regulator will intervene and prevent it from happening. Since Beijing introduced stringent capital controls four years ago, outflows have held steady, even during foreign and domestic pressures on the world’s second-largest economy.
The PBOC is adding to its bullion reserves, too. Central bank data published on May showed that gold reserves climbed from 61.1 million ounces in April to 61.61 million ounces last month – that represents close to a jump of 16 tons. If the current trends stay the same, then analysts anticipate China could acquire an additional 150 tons this year.
New General Administration of Customs data found that China had a trade surplus of $41.6 billion in May, nearly double from the previous month. This represents the biggest trade surplus Since December 2018. Last month, exports rose 1.1% to $213.85 billion and imports plummeted 8.5% to $172.19 billion.
Speaking in an interview with CNBC on Monday, President Donald Trump reiterated his belief that “tariffs are a beautiful thing” and that China will inevitably reach a new trade deal because “they’re going to have to.”

The China deal is going to work out. You know why? Because of tariffs. Right now, China is getting absolutely decimated by companies that are leaving China, going to other countries, including our own, because they don’t want to pay the tariffs.

The USD/CNY currency pair rose 0.32% to 6.9318, from an opening of 6.9098, at 14:37 GMT on Monday. The EUR/CNY advanced 0.13% to 7.8409, from an opening of 7.8305.

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