- Chinese Yuan Weakness
- China Export Contraction Concerns
- China Trade Surplus
Weakness in the Chinese Yuan (USDCNY) shows no signs of slowing down, as the currency continues’ to flirt with levels last seen in 2008, against the dollar. While the Yuan has registered some gains against the dollar in recent sessions, it remains at 12-year lows.
The Yuan has fallen for a record 16 days against a basket of other major currencies alluding to growing concerns about the Chinese economy. The longest run of weakness comes at the backdrop of economic data showing that the COVID-19 pandemic continues to take a toll on the economy, with the trade deficit widening significantly in May.
As it stands, the Yuan is on its way to erasing all the gains accumulated early in the year against other major currencies. So far, it has slumped by more than 4% against the Euro as well as the Australian dollar that have also taken a significant hit against the dollar.
While the Chinese economy has shown some signs of recovery in recent weeks, the economy is still a shadow of its January levels. The trade surplus has, in recent months, edged higher with exports falling significantly in May.
Overseas shipments fell by 3.3% in May. The drop could have been much higher if the economy had not benefited from an uptick in exporting medical supplies. Imports were also on the decline, falling by 16.7% compared to a year earlier.
China’s trade surplus surged to $62.3 billion, the highest in nearly 20 years. Factory surveys for May showed that export orders remain deep in contraction, an indication that the trade surplus could widen further. The trade surplus with the U.S has already widened to $27.9 billion.
Concerns about economic recovery are one of the tailwinds that have continued to weigh in on the Chinese Yuan strength in the market. Concerns about escalating tensions between Beijing and Washington are another headwind that could take a toll on the economy, conversely lead to further weakness in the Chinese Yuan.