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Forex in China Rises as the US Dollar Continues to Weaken

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China’s foreign exchange reserves have risen slightly in March. This comes as the broad US dollar weakness continues to spread throughout the market due to escalating tension between the two biggest economies in the world. Reserves rose by $9 billion in March and this means that the total is now $3.143 trillion. A drop of $27 billion was experienced in February and this is according to the central bank data.

Economists expected reserves to increase by around $6 billion in March to $3.14 trillion. Capital flight however is a huge risk for China and this is especially the case if you look at the start of 2017. A combination of much tighter capital controls showed a faltering dollar helping the yuan to make a huge U-turn and it also gave a lot of confidence to the economy as well. China’s reserves rose for the very first time since 2014 and the cross-border flowers went from net outflows to being stable. The foreign exchange regulator for China stated that in late March, it was expected that the cross-border capital flaws would in fact be stable for the rest of the term.

What’s interesting to know is that the Chinese currency rose by over 0.8% against the dollar in March and this was its largest quarterly gain in over a decade, when you look between the January-March period.

Caitong attributed to the yuan strength and this is down to the newly launched crude oil futures. This happened in Shanghai and the brokerage then triggered the demand for the yuan from various investors. The Trump administration slapped plenty of hefty tariffs on both steel and aluminium imports over the last week and then they introduced tariffs on over 1,300 Chinese industrial technologies. This was an attempt to enforce Beijing’s intellectual property. In response, China then slapped plenty of extra tariffs of up to 25% on 128 United States products. This includes frozen pork as well as fruits and even wine as well. They have also implied that they would soon announce way more measures of equal intensity and scale against plenty of US goods.

The looming spectre of a trade war between the two countries fuelled plenty of expectations that Beijing may be way happier to see a stronger yuan at this point as it may help to defuse some tensions with Washington. The value of the gold reserves in China rose to $78 billion and this happened at the end of February.

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