China released its FX reserves data for April, along with the foreign trade data. The overall scenario is that the Chinese economy continues to face headwinds, albeit less stronger than in the earlier months, noted Nordea Bank. China’s FX reserves rose moderately to USD 3219 billion in April, rising by USD 7 billion, as compared with market projections for a drop of USD 10 billion.

This was valuation impact, mainly because of a weaker US dollar, which helped in increasing the FX reserves. Net outflows of capital continued; however, they are lesser than earlier in 2016. This implies that China’s attempt at restricting speculative capital movements has been a success, according to Nordea Bank. The State Administration of Foreign Exchange (SAFE) and the People’s Bank of China had issued new regulations to bolster capital controls at the end of April. Capital borders are likely to continue to be fairly closed in the following months and the liberalization of capital account delayed.

On the currency front, the FX policy of China continuous to be ambiguous as the spot CNY and CNH have continued to be steady against the USD. However, the trade-weighted CNY has softened against a basket of currencies, said Nordea Bank. The ambiguity makes room for market speculation and depreciation pressure.

“We remain cautious on our view of the USD/CNY and forecast 6.7 at the end of this year”, added Nordea Bank.