China sells record FX in August, shows pressure after devaluation

China's central bank and commercial banks sold a net 723.8 billion yuan ($113.69 billion) of foreign exchange in August, by far the largest on record, highlighting how capital outflows intensified in the wake of the yuan's devaluation last month. The previous largest outflow, in July, totalled 249.1 billion yuan ($39.13 billion). The figures are based on Reuters calculations using central bank data, the latest of which was released on Monday.
The figures show the price China is paying to keep its currency from falling further in the face of concerns about the health of the economy and as financial markets anticipate a rise in US interest rates. Shen Jianguang, an economist at Mizuho Securities in Hong Kong, said the figures suggest selling pressure on the yuan remains strong.
"It also shows that the central bank will continue to intervene in the FX market in the coming months as depreciation expectation is still there," Shen said. Still, traders said the net outflow was within market forecasts. Some had expected a net outflow of $130 billion, said a senior trader at a Chinese commercial bank in Shanghai. This person declined to be identified.
"Purchases are likely to fall from September on but uncertainties remain, including the yuan's own volatility and the dollar's performance in global markets in line with the Fed's policy moves," the trader said. China's central bank, the People's Bank of China, surprised global markets on August 11 by devaluing the yuan by nearly 3 percent. Since the devaluation, China has scrambled to keep the yuan steady, running down its foreign exchange reserves by a record amount in August to stabilise the onshore rate.
The central bank has instituted a raft of new policies aimed at discouraging speculation on further yuan depreciation and traders suspect it also intervened in offshore yuan markets. Authorities have also frantically tried to prevent a precipitous slide in equities markets from turning into a market crash with a flurry of policies to prop up prices and restore confidence.
Economic data has raised worries in financial markets that the economy is slowing down faster than expected, despite several cuts in interest rates in the past year. The yuan was changing hands at 6.3679 per dollar, little changed on the day. The offshore yuan rate is still discounting the onshore rate, suggesting expectations persist that the yuan will fall.