Boosted by surging export receipts and investment flows, the value of foreign cash deposits in China's banks leapt above $1 trillion for the first time in April. Traders say it poses a risk to official efforts to control a fast-rising yuan
Boosted by surging export receipts and investment flows, the value of foreign cash deposits in China's banks leapt above $1 trillion for the first time in April, official data shows
"This positioning in particular, in our view, is susceptible to a capitulation if the broad dollar downtrend were to continue," said UBS' Asia currency strategist Rohit Arora, especially if the yuan gains past 6.25 or 6.2 per dollar. Concerned this rapid rise could unleash huge conversion of the deposits into yuan, the People's Bank of China said on Monday that from mid-June, banks must set aside more reserves against them to discourage further accumulation.The central bank's stance marked a shift towards confronting a trend that gathered steam while the bank had, publicly at least, kept to the sidelines.just above the $3 trillion mark, while behind the scenes the state-bank and private sectors stepped in.
"The private sector has overtaken the central bank to absorb excess U.S. dollar liquidity generated by the corporates and foreign investment inflows," said HSBC's global FX strategists, led by Paul Mackel, in a note published on Monday. To be sure, plenty of currency traders think that makes sustained further dollar drops unlikely. UBS' Arora and HSBC's Mackel both reckon a drop to 6.25 per dollar is possible, but that a recovery follows - to around current levels of 6.38 by year's end for Arora and for Mackel to around 6.60 by end 2021.
"How this has changed over the past few years has been quite phenomenal," said Patrick Law, head of north Asia local markets and Asia non-deliverable forwards at Bank of America in Hong Kong.
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