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.
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