The Chinese yuan weakened to kick off the trading week, although it is still trading at a three-year high against the US dollar. In addition to attempts by authorities to rein in the yuan’s strength, disappointing trading data weighed on the currency. The world’s second-largest economy continues to post sluggish numbers, so is the post-coronavirus recovery in jeopardy?
According to the General Administration of Customs, Beijing’s trading surplus slumped to $45.5 billion in May, falling short of the market forecast of $50.5 billion. This is down from the $61.9 surplus the same time a year ago amid a strengthening yuan and higher commodity prices.
Exports rose 27.9% year-over-year to $263.92 billion last month, less than the median estimate of 32.1%. Although it represented the 11th consecutive monthly gain, the reading eased from the 32.2% jump in April.
The government reported fewer shipments for grains and autoprocessing products, offset by increases for steel, rare earth, and unwrought aluminum exports.
Chinese imports surged in May, advancing at an annualized rate of 51.1% to $218.38 billion, up from a 43.1% increase in April. This was the sharpest increase in inbound shipments in more than a decade.
Beijing purchased more natural gas, copper, iron ore, soybeans, and rubber. But China bought fewer amounts of crude oil, coal, steel, and meat.
Meanwhile, the People’s Bank of China (PBoC) is reporting that foreign exchange reserves increased to $3.22 trillion in May, up from $3.198 trillion in April. The market had penciled in a reading of $3.208 trillion.
In recent weeks, the central government has signaled its displeasure with the yuan’s appreciation. Officials had refrained from intervening and placing a cap on the yuan’s ascent. But now, there is talk that the PBoC and Beijing could take action to try to curtail the currency’s surge, with currency fixing and verbal warnings.
Zhou Hao, an economist at Commerzbank AG in Singapore, told Bloomberg:
“The PBOC wants to show the market — if the rally keeps going, it has many measures to slow it down and the market will fail if it wants to make speculative bets. It’s more of a symbolic move, as no matter how the PBOC boosts funding costs on foreign exchange, the rate on the yuan will almost always be higher.”
The USD/CNY currency pair edged up 0.02% to 6.3966, from an opening of 6.3952, at 12:39 GMT on Monday. The EUR/CNY rose 0.03% to 7.7831, from an opening of 7.7814.