China Bank Clients Buy Dollars Even as Yuan Jumps Most in Decade

  • Data show people not convinced rally to sustain: Scotiabank
  • It takes time for confidence to be restored, Mizuho says

Even the yuan’s biggest rally in at least a decade wasn’t enough to get mainland bank clients to become net buyers of the currency.

Demand for foreign exchange outstripped that for yuan for the 26th month in a row, with customers purchasing a net 27.6 billion yuan ($4.2 billion) of overseas currency in August, according to data released by the State Administration of Foreign Exchange on Monday. While the figure was the smallest in a year, it caught market watchers off guard because they had used the yuan’s surge last month to predict a turnaround.

"The deficit was surprising amid the reversal of yuan depreciation expectations," said Ken Cheung, a senior currency strategist at Mizuho Bank Ltd. in Hong Kong. "It takes time for confidence to be restored. It may take longer for China to see a surplus -- it may not happen until the end of this year."

China’s exchange rate fell for three years in a row, culminating in a 6.5 percent drop against the dollar in 2016 that was the biggest loss in more than 20 years. Its fortunes changed this year, with dollar weakness and bets of official support driving the currency to a 5.7 percent advance. The rally has now sparked talk of central bank intervention to limit the advance as export growth begins to slow.

The fact that bank customers still preferred to hold the dollar means they weren’t convinced the yuan’s rally was sustainable, said Gao Qi, a strategist at Scotiabank in Singapore. The Chinese currency fell 0.9 percent last week against the greenback, the most since November, after a set of weaker-than-expected fixings and as the PBOC removed a measure that had made it costly to bet against the yuan. This came after a 2.1 percent advance last month, the most since Bloomberg started compiling China Foreign Exchange Trade System data in 2007.

— With assistance by Tian Chen

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