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China’s trade surplus narrowed in October with exports taking a hit - ING

FXStreet (Delhi) – Prakash Sakpal, Economist at ING, notes that the China’s November exports surprised on the downside with -6.8% YoY growth but imports were better at -8.7% YoY (consensus -5.0% and -11.9% respectively).

Key Quotes

“The trade surplus narrowed to US$54.1bn from US$61.6bn in October. The commodity price crash dominates China’s 2015 trade flows, putting the year-to-date growth at -2.6% for exports and -14.9% for imports, down from 6.0% and 0.5% respectively in 2014. Year-to-date trade surplus, US$543.2bn, is US$210bn wider on the year.”

“This year’s wider trade surplus has financed capital flight, which evidently intensified in November judging by the 2.5% MoM fall in foreign exchange reserves to $3.438 trillion. It’s the steepest fall after 2.6% fall in August when the 811 devaluation stoked fears that the stock market crash was the beginning of a rolling crisis that devaluation aimed to stave off.”

“The stocks plunged 12% and CNY depreciated 2.7% in August. In contrast, stocks were up 1.9% in November and the CNY depreciated 1.3%. We think the PBOC intervention to support CNY amid accelerated DXY appreciation and valuation effect, especially from EUR’s 4% depreciation, played parts.”

“We remain of the view that the PBOC wants to restore a pre-811 degree of convergence between the onshore and offshore forward curves. We think the strategy is to stabilize the spot USDCNY fixing, intervene in the onshore and offshore markets to maintain USDCNY and USDCNH convergence and wait for the economic data to portray a recovering economy. The contagion from DXY appreciation since mid-October undermined the policy, resulting in a wide gap between the onshore and offshore forward curves. At 0.94% the current offshore USD premium to onshore spot is the widest in three months.”

“We forecast spot USDCNY at 6.55 (latest 6.40) by the end of 2Q16 when ING forecasts EURUSD hitting 98 (latest 1.08) and USDJPY hitting 125 (latest 123). Based on the ING’s forecast of negligible moves in the USD against EUR or JPY in the second half of 2016 and we forecast USDCNY remaining flat at 6.55.”

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