Source: China News Network
The recent lowest point of the RMB exchange rate was on May 13. In the foreign exchange market on that day, the spot exchange rates of the onshore and offshore RMB against the US dollar both fell below 6.8. However, in the following trading days, the RMB started a wave of rebound. It broke through the two integer marks of 6.8 and 6.7 in a row and returned to the 6.6 range. What is the driving force behind this?
On the 23rd, the China Foreign Exchange Trade Center reported that the central parity rate of the RMB against the U.S. dollar was 6.6756, a sharp increase of 731 basis points from the previous trading day, and the single-day increase was the largest since July 2005.
The foreign exchange market reacted faster than the central parity rate of the exchange rate. The spot exchange rates of the onshore and offshore RMB against the U.S. dollar both rose back to the 6.6 range on May 20. Compared with the above-mentioned lowest point, the largest increase in the onshore and offshore RMB in the past seven trading days has accumulated to about 1,600 basis points and nearly 2,000 basis points, respectively.
It is worth noting that the U.S. dollar index also rose above 105 on May 13, hitting the highest value in nearly 20 years, and then corrected lower. As of 17:30 on the 23rd, the lowest point had reached 102.11.
What is the driving force behind this round of RMB appreciation? Wang Youxin, a senior researcher at the Bank of China Research Institute, told a reporter from China News Agency that there are three reasons. First, the dollar gradually fell from its highs. Recently, under the influence of factors such as the decline of US economic growth expectations, the gradual hawkishness of the central bank in the euro zone, and the convergence of monetary policy trends in Europe and the United States, the US dollar index gradually fell, driving the RMB exchange rate to rebound.
Second, market expectations are gradually improving. After the rapid depreciation of the RMB exchange rate in the early stage, the pessimism in the market has been largely released. With the recent introduction of relevant economic stimulus policies and the gradual stabilization of the epidemic in Shanghai, the economic and social life, industrial chain supply chain and logistics in the Yangtze River Delta region have gradually returned to normal, and market confidence has been boosted.
Third, although the RMB exchange rate showed certain pressure in April, cross-border capital flows maintained a net inflow, foreign exchange settlement by market players increased, and foreign exchange supply and demand remained stable. In particular, with the recent rebound in the stock market, the net inflow of funds under securities investment has increased, driving the appreciation of the RMB.
Pang Ming, chief economist and chief strategist of Huaxing Securities (Hong Kong), mentioned to a reporter from China News Agency that the market expects that China's policy of stabilizing growth will be further increased, and April to May may be the bottom of the year's economic growth. In the follow-up, with the gradual advancement of various policies such as the resumption of work and production, the resumption of business and the market, the basic construction of infrastructure, the improvement of real estate margins, and the stimulation of consumption, the economy is expected to gradually come out of the bottom, and domestic demand will also usher in repairs. Various positive factors are accumulating, which is support Fundamental reasons for the rebound of the RMB exchange rate.
From the beginning of the year to mid-April, the RMB exchange rate remained at a range of 6.3, fluctuated slightly, and began to fluctuate lower in late April. After hitting the lowest point on May 13, the latest round of appreciation began.
How will the RMB exchange rate trend in the future? Wang Youxin believes that after the adjustment of RMB exchange rate fluctuations in the first half of the year, the stability and resilience of the RMB exchange rate have been verified again, and short-term fluctuations have not changed the long-term allocation properties of RMB assets. Especially after the increase in the weight of the RMB SDR, it will attract more incremental funds from the international community to increase the allocation of RMB assets, and the RMB exchange rate will gradually return to fundamentals driven by sentiment.
"Of course, considering that the current inflation pressure in the United States is still relatively high, the Fed may continue to raise interest rates significantly in the following two interest rate meetings, and there is still pressure to adjust the RMB exchange rate in the short term, but the correction rate will be controllable, and there will be an 'overshoot'. The probability is low.” Wang Youxin predicts that after entering the fourth quarter, as the pressure on US economic growth further increases, the Federal Reserve may gradually change its monetary policy stance, domestic and overseas economic growth and monetary policy cycles will be transformed again, and the RMB exchange rate will also follow. It ushered in the turning point of a new round of cyclical transformation.
"Considering the uncertainties of the epidemic and geopolitics, as well as the monetary policy differences between China and the central banks of various countries, the RMB exchange rate will still face certain pressure of correction after the strengthening of the RMB exchange rate. Pang Ming emphasized that the cyclical adjustment will not reverse or change the positive prospect of the steady increase in the proportion of the RMB in global financing and reserve currencies, and private foreign exchange reserves such as corporate foreign exchange deposits and bank foreign exchange positions are expected to remain in the process of exchange rate fluctuations. Continue to play the reservoir effect and balancing role of adjusting foreign exchange receipts and payments and smoothing out exchange rate fluctuations.
