Chinese exports pushed the trade surplus to four year highs, with exports increasing 12.7 percent year-over-year, according to the General Administration of Customs. Imports gained 5.3 percent, below the seven percent expectations.
In response, the Chinese yuan hit a high not seen since 1993. This, in part, is due to the willingness of policy makers to lift some restrictions on the yuan to allow trade and investment to be the primary driver of the yuan’s exchange rate. The yuan rose to 6.0723 per dollar, while twelve-month non-deliverable forwards were higher by .3 percent, also an all-time high.
“The trade surplus will put pressure on the yuan to appreciate for some time,” according to Mark Williams, a chief Asian economist at Capital Economics Ltd., and the reforms out of China are likely to further increase the expansion of the yuan. However, the primary worries from the Chinese government is the way the yuan fluctuates. The People’s Bank of China Governor Zhou Xiaochuan said that the movement in the yuan should be “orderly.” The central bank restricts daily movement in the yuan to only one percent, in either direction, per day.
Last month, the Chinese government released a set of broad social and economic reforms. Zhou wrote that the People’s Bank of China will exit foreign-exchange intervention and “establish a managed floating exchange-rate system based upon market supply and demand.” It is important as the reforms are implemented that the yuan’s rate is determined by the market.
The yuan was the best performing Asian currency against the greenback, increasing 2.6 percent. Since 2005, the yuan increased 36 percent against the dollar.