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USD/CNY Flat As New Bank Loans, Credit Growth Beat Market Forecasts

September 11, 2020 at 17:00 by Andrew Moran

Three CNY100 bills of 2005The Chinese yuan is trading flat against the US dollar to finish the holiday-shortened trading week. The yuan is trying to find support on positive numbers relating to credit markets. The currency has appreciated in recent months as the world’s second-largest economy stabilizes and rebounds in the aftermath of the coronavirus pandemic.

According to the People’s Bank of China (PBoC), financial institutions extended $187.25 billion in new yuan loans in August, up 29% from the previous month. The median estimate was about $170 billion. Household and corporate loans jumped 8% and 23%, respectively. Outstanding loan growth also advanced 13% year-over-year last month, which is in line with the market projections.

Yi Gang, the head of the Chinese central bank, says that new loans would inevitably hit a record high this year. He also anticipates that total social financing, which is a broad measure of credit and liquidity in the economy, could also hit an all-time high at year’s end.

Foreign direct investment surged 18.7% to $12.31 billion in August. Year-to-date, FDI picked up 2.6% to $89 billion. This is slightly down from the $89.26 billion from the same time a year ago.

The M2 money supply growth increased 10.4% in August YoY, down from the 10.7% jump in July.

Capital Economics wrote in a research note that there would likely be an acceleration in lending over the next several months.

A further ramp-up in government bond issuance is planned over the remainder of the year. What’s more, stronger investment demand on the back of the ongoing economic recovery should prop up issuance of corporate bonds and equity

Earlier this week, the consumer price index (CPI) edged up 0.4% in August, matching market forecasts. The inflation rate rose at an annualized rate of 2.4%. Producer prices shed 2% YoY last month. Automobile sales increased 11.6% in August, down from the 16.4% spike in July.

On the geopolitical front, US-China tensions continue to escalate over the White House’s considerations to impose bans on chipmaker SMIC and Tencent’s mobile app WeChat. Analysts do think, however, that trade disputes could diminish as Beijing ramps up its purchases of American agricultural commodities.

The USD/CNY currency pair was flat at 6.8344 at 16:53 GMT on Friday. The EUR/CNY rose 0.19% to 8.0916, from an opening of 8.0745.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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