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The latest data released by the People’s Bank of China (PBoC) show that the forex reserve at the central bank rose for the first time since June last year. The reserve rose by almost $7 billion that pushed the total reserve from $2.998 trillion to $3.005 trillion. The median expectation was that the reserve would decline to $2.969 trillion in February.
This improvement came as a result of the country’s crackdown on foreign exchange flows in January. The slowdown in outflows also pushed the yuan higher against the dollar this year, which is up more than 1 percent so far this year. Last year was the worst year for the yuan despite its inclusion to the International Monetary Fund’s (IMF) special drawing rights (SDR) basket. In 2016, the yuan declined more than 6 percent against the dollar.
While we at FxWirePro are positive on the yuan in H1, we expect attempts from speculators to push the yuan lower than 7 per dollar in H2. The Yuan reached close to our target of 6.75 per dollar in H1 when it reached 6.777 per dollar. We suspect that a breach of 7 per dollar could eventually push the yuan to as low as 7.6 per dollar.
