2023-06-29 15:13:01
Recently, the continuous depreciation of the RMB once morest the US dollar has aroused widespread concern in the market. On June 28, the exchange rate of the onshore renminbi once morest the US dollar fell below 7.25 intraday, and the offshore renminbi once fell to 7.2692, both hitting new lows since November 2022. During the session on June 29,The onshore renminbi once once more fell below the 7.25 mark, while the offshore renminbi once fell below the 7.27 mark。
In intraday trading on June 29, the onshore renminbi fell below the 7.25 mark once more
Looking back on 2022, the RMB exchange rate once morest the US dollar has experienced two waves of relatively large depreciation, one was a rapid adjustment from 6.37 in mid-April last year to 6.81 in mid-May, and the other was from 6.75 following the MLF cut interest rates on August 15 last year. Continued adjustment until reaching a low of 7.32 in November. Compared with the two waves of devaluation last year, what are the differences in this round of RMB depreciation?
In addition, in the face of the fall in the RMB exchange rate, there is speculation in the market that the central bank may re-introduce “counter-cyclical factors” to stabilize the exchange rate. Experts interviewed pointed out that in order to prevent the “herd effect” in the foreign exchange market, it is not ruled out that the regulators will reintroduce “counter-cyclical factors” or even use other foreign exchange market regulation tools. This is not to hold on to a specific point, but to control the speed of depreciation and avoid one-sided and extreme market sentiment.
The exchange rate of RMB once morest the US dollar broke through 7.25 once more
Since May, the exchange rate of the RMB once morest the US dollar has continued to fall. After breaking through the 7.00 and 7.10 barriers in succession, it quickly fell below the 7.20 and 7.25 barriers in recent days.
On June 26, the RMB once morest the U.S. dollar both fell in the offshore market, falling below 7.20 at the opening, and then continued to drop, closing at 7.2219 onshore and 7.2454 offshore. On the next day, the onshore and offshore renminbi exchange rates rebounded, recovering the 7.22 and 7.21 mark one following another, and finally closed at 7.2101 onshore and 7.2239 offshore.
Recent onshore RMB quotation trend
However, this rebound did not continue. On June 28, both the onshore and offshore markets fell sharply. The exchange rate of the onshore renminbi once morest the US dollar fell below 7.25, and the offshore renminbi once approached 7.27, both hitting new lows since November 2022. The intraday depreciation rate was nearly 400 basis points . On the same day, the exchange rate of the onshore RMB once morest the US dollar closed at 7.2455, and the offshore closed at 7.2431.
In intraday trading on June 29, the onshore renminbi once once more fell below the 7.25 mark, while the offshore renminbi also fell below the 7.26 mark once more.
In intraday trading on June 29, the offshore renminbi once once more fell below the 7.26 mark
Zhou Maohua, a macro researcher of the Financial Market Department of Everbright Bank, told the reporter of “Daily Economic News” that the recent depreciation of the RMB exchange rate can be attributed to several factors:
First, the pace of economic recovery is not ideal, and the market expects loose policies;
Second, the Fed’s hawkish rhetoric has raised expectations for a stronger dollar;
The third is that the market volatility has increased, which has a certain impact on the RMB exchange rate;
Fourth, the seasonality of dividends and foreign exchange purchases disrupts short-term supply and demand in the market。
The U.S. dollar index strengthens in the short term
Form passive depreciation pressure on RMB exchange rate
Previously, the central bank pointed out in the report on China’s monetary policy implementation in the first quarter of 2023 thatThe current external environment is becoming more and more complex and severe, the internal driving force of the domestic economy is not strong, and the demand is still insufficient。
The reporter noticed that from April to May, the national consumer price index (CPI) and industrial producer price index (PPI) both fell month-on-month, the manufacturing purchasing managers index (PMI) was below the critical point, and the non-manufacturing business activity index decline.
According to customs statistics, in May this year, my country’s import and export reached 3.45 trillion yuan, an increase of 0.5%. Among them, exports were 1.95 trillion yuan, a decrease of 0.8%; imports were 1.5 trillion yuan, an increase of 2.3%; the trade surplus was 452.33 billion yuan, a decrease of 9.7%.
In this context, the market’s expectations for policy easing have increased. Just in mid-June, the operating rates of the 7-day reverse repo, standing lending facility (SLF), and medium-term lending facility (MLF) were cut by 10 basis points. Subsequently, the LPR quotation was released in June, and the 1-year and 5-year-old LPRs were all lowered by 10 basis points.
In June, the 1-year and 5-year-plus LPRs were lowered by 10 basis points. Image source: Central Bank website
“After the policy interest rate cut was implemented in June, other policies to stabilize growth have not yet been fully introduced. Especially following the quotation of LPR with a period of more than 5 years was lowered, the market still lacks clear expectations on when other measures to stabilize the property market will be launched.The resulting poor expectation of stabilizing growth policies is a major factor leading to the rapid depreciation of the RMB in the near future. “Wang Qing, the chief macro analyst of Dongfang Jincheng, told the reporter of “Daily Economic News” that following experiencing a sharp rebound on June 16, the renminbi has weakened once more in recent trading days. Not reversed at all.
Regarding the implementation of the policy interest rate cut in June and the resulting divergence between the monetary policies of China and the United States, Wang Qing said, “It can be seen that the degree of inversion of the interest rate spread between China and the United States has not deepened significantly following the interest rate cut; It can also be seen that the impact of the central bank’s interest rate cut is not significant.”
On June 28, the US dollar index was close to 103 points
In addition, on June 28 local time, Federal Reserve Chairman Powell said at the European Central Bank seminar in Sintra, Portugal that most policymakers expect to raise interest rates twice this year and do not rule out the possibility of consecutive interest rate hikes. The hawkish speech made the market expect the Fed to raise interest rates, coupled with the US government’s debt ceiling crisis, the US dollar index strengthened in the short term, forming passive depreciation pressure on the RMB exchange rate.
What is the difference from last year’s two rounds of depreciation?
Looking back on 2022, the RMB exchange rate once morest the US dollar has experienced two waves of relatively large depreciation, one was a rapid adjustment from 6.37 in mid-April last year to 6.81 in mid-May, and the other was following the MLF cut interest rates on August 15 last year. 6.75 continued to adjust until it hit a low of 7.32 in November. After that, it began to rebound and closed at 6.9514 on December 30 of that year.
From mid-April to mid-May last year, the onshore RMB quotation quickly adjusted from 6.37 to 6.81
Since the beginning of this year, both the onshore and offshore renminbi have depreciated once morest the US dollar by more than 4%. Compared with the two waves of depreciation last year, what are the differences in this round of RMB exchange rate depreciation?
Wang Qing told reporters that from the perspective of driving factors, there is little difference between this round of RMB devaluation and the two rounds of devaluation in 2022.Both are mainly driven by the expected weakening of economic fundamentals. The difference is that the evolution of the epidemic and prevention and control policies in 2022 determines the economic fundamentals and the direction of the RMB exchange rate; since April this year,Affected by the slowdown in external demand and the weakening of the property market once more, the domestic economic recovery is weak, which has become the main reason for the current round of RMB depreciation。
After the MLF cut interest rates on August 15 last year, the onshore RMB quotation continued to adjust from 6.75 to the November low
In addition, in terms of duration and depreciation rate, compared with the two rounds of depreciation in 2022, this round of depreciation is relatively smooth;Cash flowDuring this period of time, the overall operation of the foreign exchange market was also relatively stable. This may be one of the reasons why regulators have not yet used foreign exchange market regulation tools so far.
The reporter noticed that due to the recent large fluctuations in the RMB exchange rate, there is speculation in the market that the central bank may reintroduce “counter-cyclical factors” to stabilize the exchange rate.
Since the beginning of this year, the onshore RMB has depreciated by more than 4% once morest the US dollar.
Wang Qing said that considering that the recent depreciation of the RMB has accelerated,In order to prevent the “herd effect” in the foreign exchange market, it is not ruled out that the regulators may reintroduce “counter-cyclical factors” or even use other foreign exchange market regulation tools. “It should be pointed out that this is not to hold on to a specific point, but to control the speed of depreciation and avoid one-sided and extreme market sentiment.”
Zhou Maohua believes that,Recently, the RMB exchange rate has fluctuated greatly, but overall it has not deviated from the reasonable range. There is no panic or irrational behavior in the market, and the flexibility of the RMB exchange rate has increased significantly. The country firmly promotes the market-oriented reform of the RMB exchange rate. Before the market clearly deviates from the fundamentals, is irrational, pro-cyclical, or maliciously short-selling, the central bank will take more guidance on expectations.
How will the RMB exchange rate trend in the second half of the year?
Several interviewees stated that,The future trend of the RMB exchange rate will depend on the impact of economic fundamentals。
Zhou Maohua told reporters that from the perspective of the internal environment,Still optimistic regarding the performance of the RMB exchange rate, it is expected that the RMB exchange rate will continue to fluctuate in a two-way manner near a reasonable and balanced level in the second half of the year, mainly due to the recovery of domestic economic activities, the steady recovery of the service industry, the precise and powerful macro policies, and the steady recovery of the economy. From the perspective of the external environment, the end of the Fed’s interest rate hike and the slowdown of the overseas economy are positive for the trend of the RMB. In addition, from the perspective of real interest rates, my country’s interest rates are still higher than those in Europe and the United States.
Wang Qing believes that the current RMB exchange rate is under greater pressure to depreciate.However, it is unlikely that it will directly break through last November’s low in the short term. There are two main reasons for this: first, in the stage of rapid depreciation, in order to prevent the “herd effect” in the foreign exchange market, regulators may use various foreign exchange market control tools to curb the momentum of excessive depreciation; A number of policies and measures to stabilize growth will be launched one following another, and the depreciation trend of the RMB caused by poor policy expectations is expected to ease.
“We judge that the exchange rate of RMB once morest the US dollar may fluctuate above the low point in November last year for a period of time, that is to say, it is less likely to directly break through the point of 7.32.” Therefore, we can focus on the launch time of a number of policy measures to stabilize growth mentioned in the executive meeting of the State Council on June 16, and when the macroeconomic recovery momentum will strengthen in the third quarter.
In addition, Wang Qing believes that “With the domestic price level expected to remain moderate in the second half of the year, a purely weaker RMB will not substantially affect the direction of domestic monetary policy. As the world’s second largest economy, my country will place the highest priority on the independence of monetary policy. If it is necessary to further increase counter-cyclical regulation in the second half of the year, there is room for interest rate cuts and RRR cuts. “
At the same time, moderately increasing the flexibility of the RMB exchange rate and releasing the pressure of depreciation can also better play its role as an automatic macroeconomic stabilizer. More importantly, the moderately loose monetary policy in the second half of the year will effectively boost the momentum of economic recovery, which is the most effective support for the RMB exchange rate.
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(Source of article: Daily Economic News)
Article source: Daily Economic News
Original title: RMB exchange rate fell below 7.25! Analyst: Be wary of the “herd effect” in the foreign exchange market! what is the reason? What is the future?A comprehensive interpretation is coming
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