China: Flow dynamics still broadly stable – Nomura

Analysts at Nomura point out that China’s headline FX reserves in August fell USD8.2bn m-o-m to USD3109.7bn and was slightly lower than the consensus forecast of USD3115.0bn and Nomura’s view of USD3122.9bn.

Key Quotes

“Adjusting for FX valuation and coupon-payment effects, China FX reserves fell USD17.4bn m o-m after a USD2.2bn increase in July.”

“This was the first decline since March 2018, and is consistent with recent RMB stress, with onshore spot USD/CNY reaching a multi-month high of 6.9340 on 15 August and reported sporadic PBoC USD selling intervention in the market (Bloomberg, 3 August; unconfirmed).”

“That said, we still believe current capital flows in China as being fairly balanced and especially when compared with outflows in 2015/16. Indeed, our tracking of flow data suggests the current capital flow backdrop remains benign.”

“We remain long USD/CNH and still see risks of a break of the 7-figure in coming months.”