At noon on September 5, the dollar index broke through the 110 mark in one fell swoop, setting a 20-year high. On the same day, the offshore RMB rose to a maximum of 6.954, and the pressure on RMB depreciation continued in the short term.
As of 15:30 Beijing time on September 5, the US dollar/renminbi was 6.9349, the US dollar/offshore RMB was 6.9417, and the US dollar index was 110.025.
On the afternoon of September 5, in order to improve the ability of financial institutions to use foreign exchange funds, the People's Bank of China decided to lower the reserve ratio of financial institutions' foreign exchange deposit by 2 percentage points from September 15, 2022, that is, the reserve ratio of foreign exchange deposits is lowered from the current 8% to 6%. The offshore RMB rose only 100 points in the short term.
A foreign bank strategist told the reporter of First Financial that in fact, in the past two weeks, the People's Bank of China has strengthened the RMB mid-price for many consecutive days to release a stable signal. Last Friday, the adjustment of the RMB mid-price (the direction of RMB appreciation) exceeded 240 points. However, against the recent backdrop of the extreme weakness of the yen and the euro, the US dollar index has strong momentum for rising.
The upward momentum of the US dollar index is still there
5 On the 5th, the central bank unexpectedly "reduced the reserve requirement ratio" in an attempt to relax US dollar liquidity, cool down the strong US dollar and boost the RMB. In May this year, the central bank has "lowered the reserve requirement ratio" once (the foreign exchange reserve requirement ratio has been lowered from 9% to 8%). Xie Yunliang, chief macro analyst of Cinda Securities, told reporters that this is the second "reserve reserve requirement cut" this year, and it is all in the context of depreciation. The "reserve reserve requirement cut" is intended to increase the supply of US dollars in the foreign exchange market, improve the willingness and ability of financial institutions to sell foreign exchange, and thus alleviate the pressure on RMB depreciation. This adjustment will release about US$19 billion in foreign exchange liquidity, which is greater than that in May. There are many tools for the central bank to stabilize the exchange rate, and it is difficult to see the depreciation of the exchange rate and out of control.
The US non-farm employment report in August was mixed, but this is hard to shake The Federal Reserve's determination to raise interest rates to fight inflation, and traders also know this.
html In August, the number of new non-agricultural jobs in the United States was 315,000, which was far lower than last month, but was higher than expected by 300,000. The previous value slightly increased from an increase of 528,000 from an increase of 528,000. In addition, the average monthly increase in hourly income fell from the previous value of 0.5% to 0.3%, with an expected value of 0.4%. The most important part of this report is the unemployment rate, which rose from 3.5% to 3.7%. However, part of the rise in unemployment rate may be due to the rise of labor participation rate from 62.1% to 62.4%."The above report is mixed, but it is unlikely to change the idea of Feder . The new figures on the surface are still strong and powerful, and in terms of unemployment, the Fed has expressed its willingness to pay a certain price to reduce inflation. The rise in labor participation may drive the rise of unemployment, but the Fed's interest rate hike may eventually affect the labor market. As other spending increases, private companies like Meta have begun to reduce recruitment. Single data is not enough to form a trend, but will it be the beginning of the continued rise in unemployment? Everything still needs to be observed." Joe Perry, a senior analyst at Jiasheng Group, told reporters.
In his opinion, given the market's perception of the Federal Reserve's determination, on September 5, the US dollar index broke through the 110 mark in one fell swoop, which is also expected. As early as August 26, Federal Reserve Chairman Powell emphasized at the annual meeting of the global central bank that austerity policies will be maintained until inflation is completely resolved. At that time, the hawks' statement triggered the dollar bulls. From a technical perspective, the upper resistance of the US dollar index has been 110.59, the resistance level since September 2001 is 111.31, and the upper trend line of the channel has been around 112 in the recent channel. But if the US dollar index falls, the lower support will fall at around 107.59, 106.93 and the lows since August 11 of 104.65.
The market expects the Federal Reserve to raise interest rates at least again this year. Goldman Sachs expects to raise interest rates by 50BP in September (but the probability of 75BP remains), and 25BP in November and December respectively.
Euro accounts for nearly 60% of the US dollar index, and the weakness of the euro has also caused the US dollar index to remain high. On September 5, the euro fell below 0.99 against the US dollar, hitting a new low since December 2002. This week, the European Central Bank will usher in a interest rate agenda meeting. The market generally expects that the European Central Bank will raise at least 50BP interest rates, and may even raise 75BP interest rates. But the probability of a recession in the euro zone soared, which always put pressure on the euro.
Russian Natural Gas Industry Co., Ltd. recently announced that when jointly repairing the turbine of the "Portovaya" compressor station with a representative of Siemens in Germany, multiple equipment leaked oil, and the " Nord Stream-1" natural gas pipeline will completely stop gas transmission until the troubleshooting is solved. Natural gas prices continue to soar.
RMB may reach the 7 mark
Due to the increasing differentiation of monetary policies between China and the United States, the pressure on the depreciation of the RMB has gradually increased.
Last week, the yield on the US 10-year Treasury bond was 3.195%, while the yield on the China 10-year Treasury bond was 2.648% (down 20BP from July to date), and the inverted spread of the China-US interest rate hierarchy 2 continues to deepen. In this case, if you go long the US dollar or short the RMB, traders can get interest spread without risk.
China AVIC Trust macro strategy director Wu Zhaoyin told reporters that the US dollar/renminbi rose from 6.7 to 6.9 in three weeks. The US interest rate level still has a lot of room for upward, while China's interest rate is temporarily difficult to rise, and the pressure of RMB depreciation is objectively present. Although China has a large trade surplus, which ensures that the RMB will not depreciate significantly in the long run, the interest rate parity of affects short-term cross-border flows of capital, so the RMB still depreciates against the US dollar in the short term.
Nomura recently said that the US dollar/offshore RMB is expected to hit 7 in September. Previously, HSBC raised its forecast for USD/RMB. The agency currently believes that by the end of 2022, the exchange rate against the USD will reach 6.9 and 6.95 by mid-2023.
All walks of life believe that the depreciation pressure of the RMB is controllable. During the UBS Securities China A-share seminar held recently, UBS chief Chinese economist Wang Tao told reporters that it is predicted that the US dollar may break through 7 against the RMB this year, but it is expected to return to around 6.9 by the end of the year. She believes that there is no need to worry too much about depreciation losing control, because China's trade surplus is still very considerable and it also has considerable control over capital outflows.
Wang Tao said that although the RMB has recently depreciated against the US dollar, the RMB has appreciated against the euro and the Japanese yen, and the RMB itself is not weak. "And under the current situation of high downward pressure on the overall economy, the RMB has appropriate depreciation within a controllable range, which is also beneficial to the entire export."
Since Asian currencies are all falling, from the perspective of a basket of exchange rates, the current level of the RMB is almost the same as at the beginning of this year, and it still has a relatively obvious appreciation compared with the average level last year. Data shows that the CFETS basket index was around 103 at the beginning of the year, and the highest was approaching 108 in March, and it is currently 102.02, while it remained in the 90 range most of 2021.
