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Forex - Chinese yuan may be poised to weaken in coming months

Published 03/18/2014, 02:15 AM
Updated 03/18/2014, 02:17 AM
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Investing.com - An important measure of Chinese capital flows on Tuesday reported a sharp fall in February and followed a surprise trade deficit, prompting speculation that the coming months may see a moderation of currency inflows to the country and a weaker yuan.

The yuan rose to 6.1910 against the dollar on Tuesday after People's Bank of China data released Tuesday showed that banks bought a net CNY128.25 billion in foreign exchange last month, data that came on top of February's $23 billion trade deficit.

The foreign exchange purchase data is seen as a proxy for capital flows and may signal that efforts to control back-channel flows into the country may be working.

Ministry of Commerce data also released Tuesday indicated foreign direct investment rose 4.05% year-on-year in February to $8.55 billion, much slower than January's 16% gain, though the Chinese New Year was a factor.

At the weekend, China widened the trading band for the yuan to 2% against the daily parity rate. The move was seen as an effort to allow for more active trade and as a small step toward the long-term goal of full convertibility.

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