Chinese Yuan Strengthens on Strong Trade Data

The Chinese yuan is strengthening against most major currency rivals on Thursday after the federal government reported better-than-expected trade numbers. Despite the positive numbers, they could contribute to the escalation in the US-China dispute, mainly because exports surged and Beijing’s trade surplus came in better than what the market had anticipated.

According to the General Administration of Customs, the Chinese economy reported a $45.05 billion trade surplus in July, up from $27.5 billion the same time a year ago. This is higher than the $40 billion investors had expected ahead of the report.
Chinese exports climbed 3.3% from a year earlier to $221.5 billion last month, up from a 1.3% contraction in June. They also beat the median estimate of a 2% decline. Among its trading partners, exports saw major gains in Taiwan (19.9%), ASEAN (15.6%), South Korea (9.2%), and the European Union (6.5%). As expected, exports fell 6.5% to the US.
Imports did tumble 5.6% a month ago to $176.5 billion, but they improved from the 7.3% drop in June. The biggest imports were crude oil, copper, soybean, and natural gas. Australia led the way as Beijing purchased 18.7% more from the Land Down Under.
Can China maintain the trade momentum? August exports are likely to gain from front-loading prior to the 10% tariffs on $300 billion in goods going into effect on September 1. However, exports are more likely to be tepid in the next several quarters. The yuan sliding below the crucial seven threshold against the greenback will likely prop up exports, expanded US tariffs and overall weakness in the global economy will impact trade.
Meanwhile, the People’s Bank of China (PBOC) reported that foreign exchange reserves dipped from $3.119 trillion in June to $3.104 trillion in July. But they did top the market consensus of $3.101 trillion.
Moving forward, investors will now look to inflation numbers and auto sales.
The USD/CNY currency pair fell 0.19% to 7.0466, from an opening of 7.0602, at 13:08 GMT on Thursday. The EUR/CNY tumbled 0.18% to 7.9038, from an opening of 7.9177.

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