Under the impact of the US dollar, the Asia-Pacific currency has continued to be under pressure recently. The yen continues to hover around the 24-year low, and the won recently hit a new low since 2009. South Korean foreign exchange authorities have begun selling the dollar to intervene, and the Bank of Japan also conducted an exchange rate review on Wednesday. However, market participants expect the intervention to be limited. The offshore RMB against the US dollar also eventually fell below the key 7 mark on Thursday evening. Market analysts generally believe that this is mainly due to the strengthening of the dollar index rather than the weakness of the renminbi.
In the latest research report released this week, Dongwu Securities analysts Li Yong and Chen Boming said that the US dollar is currently in the fourth wave of impact, and this round of impact has just begun.
” Historically, since 1985, the US dollar index has experienced four ups and downs in total: the first wave of shock (1985-1987) began with high interest rates and the US fiscal deficit that raised the US dollar index; the second wave of shock (2000-2004) the Asian financial crisis and the Federal Reserve's interest rate hike raised the US dollar index; the third wave of shock (2014-2018) the US economy recovered strongly, funds flowed back, and the US dollar index Rising; the fourth wave of shock (2021 to present) is fundamentally strong in the United States and weak in Europe. The energy crisis in the background of the Russian-Ukrainian conflict has interrupted Europe's pace of chasing the United States. The Federal Reserve's interest rate hike cycle has significantly led the European and Japanese. The fourth wave of shocks of the US dollar index is coming. "They said that by observing the shape of previous shocks of the US dollar index, it takes about 5 to 6 years to strengthen the US dollar index. Therefore, the fourth wave of shocks of the US dollar index has just begun, and it began to pull back in the first half of 2023 and continued to rise by the beginning of 2024.
Marc Chandler, chief market strategist at Bannockburn Global Forex, told First Financial reporter that the surge in the US dollar does not mean that the currency war crisis is coming. "Despite the strengthening of the US dollar, U.S. exports still hit a record high in July. (This round of fluctuations) is almost entirely a surge in the US dollar, not an active change in the euro or the yen." Chandler added, "Powell has said that the import price data released overnight also shows that a firm dollar is part of the tightening of financial conditions and is necessary to reduce price pressure."
yen and South Korean won hit record lows for many years. Can the intervention be effective?
On the 15th local time, data from the U.S. Department of Labor showed that due to the decline in oil product costs and the strengthening of the US dollar, U.S. import prices fell for the second consecutive month in August, down 1.0% month-on-month, and the previous value was 1.5%. In the 12 months to August, import prices climbed 7.8% to 8.7% in the previous 12 months.
But no matter what, the fourth wave of the US dollar has put continuous pressure on a number of Asia-Pacific currencies, among which the Japanese yen is the most significant. Since the beginning of this year, the Federal Reserve has continued to aggressively raise interest rates, while the Bank of Japan insists on the yield curve control (YCC) policy to "security bonds and abandon foreign exchange", and the interest rate spread of Japan-US has continued to widen, resulting in the continued depreciation of the yen against the US dollar. From the beginning of the year to the present, the yen exchange rate has depreciated by more than 20%. The dollar closed up 0.2% again against the yen on Thursday to 143.47. In the early trading of the Asia-Pacific today, the yen continued to hover around the 24-year low.
14, Japanese media quoted sources as saying that the Bank of Japan conducted an exchange rate review around the US dollar against the Japanese yen 144.9, that is, major Japanese commercial banks were required to provide details of foreign exchange transactions to central bank . The report said that exchange rate review is often seen as a stronger intervention than previous oral interventions. In addition, Japanese Finance Minister Shunichi Suzuki said this week that if the previous trend of changes in the yen-USD exchange rate against the US dollar continues, it is not ruled out that all measures should be used to interfere with the exchange rate, and foreign exchange response options include direct intervention. The news briefly caused the yen to rise rapidly on Wednesday, but then Japan's latest August trade deficit hit a record, highlighting the reason for bearishness of the yen, which fell again against the US dollar.
Goldman Sachs strategist Karen Fishman expects that the yen will have room for further weakness in the short term as the Federal Reserve continues to raise interest rates sharply. “Comments from Japanese government officials have raised the possibility of intervening for the first time since 1998 to support the yen exchange rate, and Japan’s depreciation momentum against the dollar has eased this week. However, our previously expected yen’s three-month target of 145 is facing greater downward pressure."If the 10-year U.S. Treasury yield jumps to 4.5%, or about one percentage point above the current level, the yen-USD exchange rate could reach 155," he said. "
Not only the Japanese yen, the Korean won also hit a new long-term low against the US dollar this week. On Wednesday, the Korean won fell 1.5% against the US dollar to 1,394.40, a new low since 2009. The South Korean central bank said earlier this month that the Korean won't weaken recently faster than the fundamentals reflected. The "fast" decline in the won will actively take measures. On Thursday, after the won hit a new low of 13 and a half years, foreign media quoted news from multiple traders that South Korean foreign exchange authorities did begin to sell the dollar to curb further declines.
Meanwhile, South Korean Finance Minister Choo Kyung-ho also said at a parliamentary meeting on Thursday that South Korea is reviewing the "emergency plan" related to foreign exchange fluctuations, and the authorities will take measures to deal with excessive foreign exchange fluctuations.
According to the South Korean Ministry of Foreign Affairs, the weakness of the won has pushed up South Korea's inflation as 94% of South Korea's energy and natural resources rely on imports. And due to slowing export growth, coupled with the soaring global energy prices after the escalation of the situation in Ukraine, South Korea may record its first annual trade deficit since 2008 this year.
RMB "breaks 7" but is not weak
is the same as other major Asia-Pacific currencies, and the strong dollar has also caused the RMB to be in a stalemate in the 6.9 range and close to 7 for several weeks. On Thursday evening, USD/Offshore RMB (USD/CNH) was 7.0124, which means that since August 2020, the RMB exchange rate against the US dollar has "breaked 7" for the first time in the offshore market of .
Today's Asia-Pacific early trading, the USD/Onshore RMB (USD/CNY) also "breaked 7". As of midday reporter's deadline, the USD/Offshore RMB fell further to 7.0192. Although the RMB fell below the key point, analysts and traders said that the RMB "breaked 7" against the US dollar is still relatively orderly, which is mainly due to the widespread strengthening of the US dollar, rather than the weakness of the RMB. Brad, the global foreign exchange director of
Jeferies (Jeferies), Bechtel said that in fact, the CFETS RMB index , which measures the exchange rate of RMB against a basket of currencies, "stays". This shows that in a broad sense, the RMB has not really depreciated as much as the appreciation of the US dollar.
This round of RMB exchange rate decline began on August 15 when the People's Bank of China lowered the interest rate of the medium-term lending facility (MLF). Faced with this round of depreciation, People's Bank of China previously decided on September 5 to lower the reserve ratio of financial institutions foreign exchange deposit by 2 percentage points from September 15, 2022, and that is, the second time this year, the foreign exchange deposit reserve ratio has been lowered.
Chandler told the First Financial Daily that given that "China's six major state-owned banks will lower their personal deposit interest rates from September 15, the Federal Reserve will most likely raise interest rates by 75 basis points next week", the RMB exchange rate performance is "consistent with the fundamentals."
According to CCTV News Client, Ding Zhijie, director of the Foreign Exchange Research Center of the State Administration of Foreign Exchange, also said that if we look at it in the past year, (RMB) is far better than the currencies of most developed countries and emerging market countries. Our exchange rate is basically stable in terms of supply and demand in the foreign exchange market, as well as the exchange rate level and exchange rate trend. He added that China is still unswervingly expanding the high-level opening up of the financial market to the outside world and continuously expanding the depth and breadth of foreign exchange market transactions. In August, the situation of overseas investors in domestic bonds and stock markets continued to improve, and RMB assets were favored by overseas capital.
htmlOn September 5, Liu Guoqiang, Vice President of the People's Bank of China, said that the long-term trend of the RMB should be clear, and the world's recognition of the RMB will continue to increase in the future. Two-way fluctuations in the short term are a normal state, and there will be no " unilateral market " and "but the exchange rate point is not accurate, so don't bet on a certain point. We like to hear reasonable balance and basic stability, and we also have the strength to support it. I don't think anything will happen, and it is not allowed to happen." He said.CITIC Securities Co-chief economist Mingming pointed out that the People's Bank of China has a wide range of policy tools that can be used to stabilize the exchange rate, including but not limited to starting countercyclical factors, adjusting macro-prudential adjustment parameters for corporate cross-border financing, etc. Among them, the "counter-cyclical factor" will directly act on the RMB mid-price quotation model against the US dollar. Although it is still impossible to clarify whether the central bank has enabled the "counter-cyclical factor" and whether some quotation banks have adjusted the mid-price quotation model, from historical experience, the above tool is very effective in dealing with the continuous unilateral depreciation of the RMB.
