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Chinese Banks Make Their First Net Forex Purchase In April 2018

Chinese commercial banks recorded their first net forex purchase for the year this April. Their previous purchase was back in December 2017. The result was that the forex market supply and demand remained balanced based on feedback from the State Administration of Foreign Exchange (SAFE).

China's lenders bought the equivalent of $157.4 billion in various foreign currencies, while they sold around $146.7 billion for the entirety of April. The result is a net purchase of $10.6 billion. In March, there was a net forex sale of $9.2 billion.

According to a SAFE spokesperson, the supply and demand for forex in China have been fairly balanced. There has been an equivalent movement in both coming and going when it comes to the flow of money in China. The stability has been attributed to China's economic fundamentals which focus on stabilizing forex market expectations.

April saw emerging markets getting increased pressure from both currency depreciation and capital outflow. This is mostly because of a strong dollar and higher U.S. interest rates, combined with a volatile international market.

In a statement, a SAFE spokesperson said

Based on sustained steady operation of the domestic economy, China's forex market will be able to adapt to external changes and maintain reasonable, balanced cross-border capital flows in the future

Forex Reserves Increase

The Chinese yuan held strong against the US dollar during the first quarter of the year but has become weaker against the dollar in the past few weeks. Despite its weakening against the dollar, the yuan is still stronger against quite a few currencies.

In the first quarter of 2018, the Chinese economy expanded 6.8%. This was above the government's annual target of 6.5%, which is very good news for the Chinese government. April saw Chinese economic activity become a lot more stable, with the strong industrial sector making up for the slowdown of retail sales and fixed asset investments.

With these latest reports from January to April, Chinese banks had a net forex sale of $7.6 billion. These sales are combined with the fact that yuan funds for forex purchases have increased. This is the fourth month that the reserve has increased. Such high reserves are a good sign on the Chinese economy. An increased reserve means that capital flight pressure has decreased, while lower funds mean that capital flight pressure has gone up. At the end of April, China's forex reserves stood at $3.1249 trillion.


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