Reversals of Fortunes

China’s final 1Q 2018 balance of payments data revealed two surprising phenomena—the largest quarterly current account deficit on record and a huge surplus from foreign direct investment. Both highlight the importance of exchange rate expectations in driving capital flows in and out of China, which suggests the yuan’s depreciation in 2Q and the narrowing of the US-China interest rate gap will probably drive stronger outflows for the rest of 2018.

Posted July 5, 2018
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