Yuan Fundamentals Under Threat as External Surplus Shrinking

A strong balance of payment history underpinned the Chinese yuan’s strength this year, but recent data indicates that a reversal is underway.

China’s external deficit in the third quarter – only its third this century – marks notably weaker fundamentals for the yuan and raises questions over its strength, Credit Agricole said in a report.

Last week, China’s State Administration of Foreign Exchange (SAFE) reported a capital account deficit of $81.6 billion for the July-September period and a current account surplus of $81.5 billion.

“When you look at the numbers, the current account surplus was still smaller than the capital account deficit, so, technically speaking, that puts the third-quarter balance of payment in a deficit,” Dariusz Kowalczyk, senior economist/strategist Asia ex-Japan at Credit Agricole, told CNBC.

Twin current and capital account surpluses were a key factor behind the yuan’s over 2 percent rally against the greenback over the past six months, which defied broad dollar strength. The current account surplus hit $80.5 billion, while the capital account surplus totaled $77.8 billion in the first half of the year, SAFE data showed in September.

“Now in a very rare turn of events, this external surplus is disappearing and I think it will last for a while,” Kowalczyk said.

via SOURCE

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.