Chinese FOREX reserves decreased to $3.51 trillion at end of September, according to the People’s Bank of China.
The decline of $43.26 billion was the fourth straight although it was not really sharp compared to the previous month. The reserves went down by a high of $93.9 billion last August.
One reason for the decline is the US dollar’s strength and capital losses. FOREX reserves of China are denominated in USD and affected by the currency’s movements. An analyst from Asia said a total of 40 percent of non-dollar reserves of Chinese currency reserves gave up 25 percent in value.
Capital outflow increased during the second and third quarters due to growth issues and instability of the financial markets. China lost some $180 billion during the 2nd quarter and $272
The country’s gold reserves plummeted from $61.795 billion towards the end of August to $61.189 billion before September ended based on research.
The country’s FX reserves plunged by $42.5 billion last July.
From July to September, currency reserves declined by $179.66 billion which is more than the $40-billion decrease during the previous quarter. This marked a fifth straight quarterly fall.
FOREX reserves were propped up by exports and soared for over 10 years before starting to decline during the third quarter of last year.
At the moment, China is trying to cope with real property downturn, industrial over-capacity, lethargic demand, and stressed exports. All these pulled growth down to seven percent from January until June of 2015.
The Aussie dollar was up among other major currencies as the Reserve Bank of Australia (RBA) kept interest rates steady so far this year.
So far, the AUD was one of the currencies affected by the economic slowdown in China during the past year.
Meanwhile, the RBA pointed out growth in the US remained strong despite recent jobs data.
A FOREX investments manager from London believes the central bank is not keen on cutting rates. Many investors were betting on a weaker AUD so it could be pushed higher after they were compelled to close these bets.
The Australian dollar climbed ½ percent overnight before going down slightly to trade at around $0.7107 in European markets.
On the other hand, the US dollar slipped versus the Japanese yen by 0.1 percent or 120.305 JPY after reaching a one-week peak overnight. It was 0.3 percent lower at $1.1224 per EUR.
Some surveys showed the pause in the US dollar’s rally convinced a lot of analysts to hold back projections for gains possibly until 2016 although several big banks still expect the USD to increase in value.
The chief investment officer for Saxo Bank of Denmark told media representatives in London any additional gains for of the USD can trigger a crisis in many developing nations and economies focused on commodities. This can cause a possible recession globally. World markets will find it difficult to cope with a robust US dollar. It should be at parity with the shared currency.
Investors have moderated speculations on a more subdued euro and yen. Projections that the shared currency will decline versus the US dollar have subsided while wagers against the Japanese yen also dropped based on reports made by the Commodity Futures Trading Commission.
Reduction in said positions happened even as their central banks maintain bond-buying programs that normally weaken currencies.
These two currencies firmed up against their major peers at the start of this quarter while the Yuan’s devaluation started a collapse in emerging markets.
However, analysts from the Goldman Sachs Group said both the yen and euro will drop as the US Fed is all set to hike rates this December.
Goldman Sachs also expects the Bank of Japan to spread out its stimulus program during its October 30 meet. The prediction is the euro may decline by US10 cents while JPY will decline to 130 per USD in 2016.
Some market analysts raised year-end projections for the common currency by four cents (US) to $1.08 and bolstered their forecasts for the Japanese currency to 123 per USD from the 126 last July.
The EUR was listed at $1.1235 in London which is up from the 12-year trough of $1.0458 last March 16. The JPY strengthened to 120.03 per USD since going down to 125.86 last June.
The CFTC revealed the EUR will plunge versus the USD dropped to 87,660 last week from 180,730 last January. Investors scaled down net-short positions for the JPY from 116,286 to 22,052 last week.
Regional economists see the decrease of Japan’s yen beyond 125 per dollar as the BOJ plans to add stimulus during its policy meeting this month.
Observers in the international FOREX market believe the EUR and GBP exchange rate will drop regardless of the strength in the euro rate structure.
The UK pound sterling was quite passive from August to September which allowed EUR and GBP to trade within the range of 0.72 to 0.74.
This has not improved until this week as the euro forced the currency pair above the ceiling of 0.74 and probably to a higher range.
The pound sterling struggled because of expectations that interest rates hike may be deferred by the Bank of England. There will be an upward pressure in case the BOE decides to be aggressive in terms of rate increases.
However, central bank officials believe the first rate hike will come during the first quarter of 2016.
Producer prices in the euro zone tightened beyond expectations which promoted speculations the European Central Bank will intervene to accelerate price pressure. The shared currency gained against other major currencies. This appreciation may be associated with the negative correlation between the EUR and USD which caused the euro to rise as a result of the US dollar’s downward trend.
Meanwhile, the FOREX reserves of Azerbaijan, a former Soviet republic in Eastern Europe, decreased from $7.315 to $7.044 billion in September. This is based on a report of its central bank. The bank’s reserves dropped from $13.758 billion (end of 2014) because of the central bank’s intervention.
The Norwegian Krone plummeted over 20 percent against the United States dollar during the past year. It is one of the worst performers among the 10 principal currencies tracked by the Correlation Weighted Index of Bloomberg in that particular period. The currency also showed a huge increase in volatility versus the euro during the last three months.
The government has become apprehensive of economic fallout after the currency is now hard to trade. Norway is one of the richest nations in the world.
According to Prime Minister Erna Solberg, the quick decline of Norway’s krone provides short-term reprieve to the largest oil producer in Western Europe. For the long-term, loss of liquidity and additional instability create risks for businesses trying to plan for more investments.
Solberg said during a Nordic Council conference outside Copenhagen this development does not bode well for a nation with unstable currency since it is vital for long-term planning when it comes to investments.
This statement of Solberg seems to contradict the message of Central Bank Governor Oeystein Olsen who welcomed the decline of the kroner since it helped exporters. He delivered an unexpected rate cut last September 24 that drove the currency down over three percent versus the euro.
Olsen noted the kroner weakened along with crude oil price but it does not constitute volatility.
Nevertheless, some economic analysts reiterated concerns of PM Solberg. Strategists of a number of Scandinavia’s largest banks maintain the currency is being treated with further concern. One bank said investors avoid the currency due to its unsteadiness.
Solberg put emphasis on the government’s pledge to prevent Norway’s over-dependence on oil. Nearly one quarter of yield and one out of nine jobs rely on the country’s petroleum industry.