Yuan sinks as China's trade surplus shrinks by over 60%

BEIJING • China's yuan sank the most since the aftermath of its shock 2015 devaluation, after data showed the country's trade surplus more than halved last month, and investors speculated that controls on cash outflows will be eased.

The yuan weakened as much as 1.2 per cent in Shanghai, touching as low as 6.3550 per US dollar yesterday. The slump marks a reversal for the managed currency, which acts as an anchor for the wider Asian region and has been rallying amid the US dollar's retreat.

Already down at the start of the trading day, the yuan extended losses after China said its surplus shrank by over 60 per cent to US$20.34 billion (S$27.1 billion) from US$54.69 billion last month. The surplus was much smaller than economists had expected, and was affected by a surge in imports on rising commodity prices as well as seasonal effects related to the upcoming Chinese New Year. A narrower surplus indicates reduced demand for the currency.

The yuan's pullback was not entirely unexpected, with its climb to a two-year high this week fuelling predictions that officials would loosen capital controls put in place since mid-2016 that were aimed at stemming what was then a weakening currency.

Sentiment has also been jittery in Chinese markets as the government's campaign against leverage looks to be heating up and rumblings about a possible trade war with the United States are becoming louder. This week's global equity rout has not helped, with the Shanghai Composite Index capping its worst three-day drop in almost two years yesterday.

"The pressures reached a peak today as the trade data surprised and stocks slumped," said Commerzbank economist Zhou Hao in Singapore. "The result was a stampede... the currency will remain pressured in the coming weeks."

A series of reports in China has spurred speculation about moves to contain appreciation pressure on the yuan. The foreign exchange regulator said on Wednesday that it sees "more noticeable" two-way moves in the yuan, which is managed by the central bank against a reference rate set each day.

China's trade surplus with the US narrowed to US$21.9 billion last month. That followed a Commerce Department report this week showing the US trade gap in goods with the Asian power surged 8.1 per cent last year.

BLOOMBERG

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A version of this article appeared in the print edition of The Straits Times on February 09, 2018, with the headline Yuan sinks as China's trade surplus shrinks by over 60%. Subscribe