USD/CNY: Chinese exports surge, US sanctions to limit yuan appreaciation – TDS

Chinese November exports surged at their fastest pace since February 2018, driven by electronics and medical equipment. Imports increased for a third straight month, while the trade surplus hit a record. The data is positive for CNY/CNH but sanctions cap gains, Mitul Kotecha, Senior Emerging Markets Strategist at TD Securities, briefs.

Key quotes

“The data revealed a very strong 21.1% YoY increase in exports and a smaller than consensus 4.5% YoY increase in imports. Exports grew for a sixth straight month, recording the fastest pace of increase since Feb 2018 while imports rose for a third straight month. Exports were driven once again by electronics and medical equipment, which jumped by 24.8% and 38%, YoY, respectively. Consequently, the trade surplus rose to $75.42 B, the largest on record.”

“The data bodes well for Chinese and Asian markets, though this will be mitigated somewhat, by new US sanctions on Chinese officials, and news that FTSE Russell is dropping 8 Chinese companies from its indices, something that could be followed by other equity index providers. In the remaining weeks of President Trump's tenure, further measures are likely.”

“We expect further CNY appreciation in the months ahead. In the near-term, a break below 6.50 USD/CNY looms, though its worth highlighting that the CNY CFETS trade-weighted index is at its lowest levels in around a month, implying relatively less strength compared to its peers recently.” 

“The PBoC has fixed the CNY stronger than expected in only 6 out of the last 20 days, indicating a preference to slow gains in spot CNY. As such, near-term gains in CNY will largely be USD dependent rather than Chinese data dependent.”