China’s foreign-exchange reserves increased for the second month in a row as market sentiment toward the yuan improved and a stronger yen and euro boosted the headline number.

The world’s largest currency hoard rose by $7.089 billion to $3.22 trillion in April, the People’s Bank of China said in a statement Saturday. That compares with the $3.20 trillion expected by economists surveyed by Bloomberg.

The market’s confidence in the yuan has strengthened as data released in April showed a rebound across several indicators and the Federal Reserve signaled it will hold off on interest-rate increases. Whether China’s momentum can be sustained remains to be seen, as some suggestions of a U.S. rate hike in June may revive capital outflow pressures.

"Less demand for dollars with more confidence in the yuan eased capital outflows," Tommy Xie, an economist at OCBC Bank in Singapore, said in an interview ahead of the release.

Even so, the headline reserves number may be stronger than it looks, as the yen and euro rose against the greenback last month, boosting China’s dollar-denominated multi-currency stockpile. The hoard is also denominated in International Monetary Fund Special Drawing Rights, which stood at 2.27 trillion units in April compared with 2.28 trillion units a month earlier.

The reserves may fall below $3 trillion in the second half, Nie Wen, an economist at Huabao Trust, said prior to the release of data Saturday. The Chinese currency may come under more pressure in May and June, given rising market expectations of a Fed rate hike next month, Iris Pang, senior economist for greater China with Natixis Asia Ltd. said before the figures were announced.

The Chinese central bank reiterated on Friday it wants to keep the yuan stable, according to its first-quarter monetary policy implementation report.

China releases trade data Sunday. Exports probably remained unchanged from a year earlier in the U.S. dollar terms, according to the median estimate of a Bloomberg survey.

Source:
courtesy of BLOOMBERG

by Bloomberg

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