USD index breaks 104, and the RMB depreciates to 6.8. What impact does this have on China's core asset prices
As Federal Reserve's interest rate hike gradually increases, the USD index is also rising rapidly. Judging from the trend of the USD index, it has risen from less than 90 last year's lowest point to around 104. At the same time, against the backdrop of the Federal Reserve's interest rate hike, the RMB has also depreciated rapidly. The latest RMB has depreciated to around 6.8 against the US dollar. This speed is also very amazing, because two months ago, the RMB was still around 6.4 against the US dollar, and it depreciated by more than 6% in just two months.
USD index
In addition to the direct factor of the Federal Reserve's interest rate hike, what other factors will promote the rapid appreciation of the US dollar and the rapid depreciation of the RMB? What impact will the depreciation of such a sharp depreciation of the RMB have on our economy and the prices of core assets related to China? Let's look at these two issues from different perspectives.
First of all, the direct reason for the appreciation of the US dollar index is the high inflation level in the United States, because the Federal Reserve's interest rate hike will produce two direct results. One is that the interest rate hike will cause the US dollar to appreciate after the appreciation of the US dollar. The increase in this yield will cause global capital to flow to the United States. The US dollar flowing back to the United States can play two main roles. The one is to undertake the possible equity asset price that may occur in the United States due to the interest rate hike reduction . Because after the interest rate hike balance sheet, the US dollar circulating in the US market will decrease. If you do not want the asset price to fall too quickly, foreign capital is needed to take over.
Federal interest rate hike
Another function is to suppress the continued rise in market prices. The reason why interest rate hikes and balance sheets will suppress inflation is, on the one hand, because the relative purchasing power of the US dollar has increased after the appreciation of the US dollar, the same amount of money can be purchased more goods all over the world. At the same time, due to the relative decrease in the US dollar in the US, the amount of currencies corresponding to the goods has decreased. Under the combined action of the two, the inflation in the US can be suppressed to a large extent. If the measures such as reducing tariffs can be coordinated, the United States will not be able to suppress its own inflation level long.
USD Purchasing Power
Secondly, the reason why the RMB has depreciated rapidly is that in addition to the objective factor of the Federal Reserve's interest rate hike and balance sheet reduction, there is also our own demand for actively seeking depreciation, because the US dollar has been appreciated since last year. At that time, the RMB not only did not depreciate, but also experienced a certain degree of appreciation. In addition, our country's foreign exchange is not a free exchange market, but has a certain regulatory nature. Moreover, our RMB has depreciated in the past two months. These are enough to prove that we are actively seeking depreciation, and not all affected by the US dollar interest rate hike.
pros and cons of devaluation
. We actively seek the devaluation of the RMB. I personally think there are two reasons. One is that after the exports reached their historical peak in 2021, the export situation this year is much more severe. Therefore, in order not to be affected too much, appropriately seeking local currency devaluation can stabilize the export of market to a certain extent; in addition, due to the impact of the Federal Reserve's interest rate hike and balance sheet reduction, we have been unable to cut interest rates to stimulate the economy. This rapid devaluation can leave a lot of room for subsequent interest rate cuts. Therefore, we still have many policy tools to stimulate the economy, but the time is not yet ripe.
Core assets
Finally, what impact will this wave of RMB depreciation have on China's core asset prices? Is this opportunity or risk?
In the medium and short term, the price of core assets in China will definitely have a negative impact. This is mainly reflected in the two most important asset prices, the housing market and the stock market. When the US dollar appreciates rapidly and the RMB depreciates rapidly, funds will usually escape the relevant core assets to a certain extent, which will cause the prices of these core assets to decline trend for several consecutive months. Therefore, it is better not to touch these assets in the initial stages of the Federal Reserve's interest rate hike and the RMB depreciation.
Stock market
But in the middle and late stages of the Fed's interest rate hike and the central bank's interest rate cut stage, the prices of these core assets have very good expectations of rising, because the market monetary policy is about to shift from tightening to loosening. So when can we consider investing in China's core assets specifically? Just remember a simple signal here. This is the time when the Federal Reserve announced the balance sheet reduction, and at the same time, the central bank announced the rate cut, it was a relatively good time point, but this time point has not yet arrived.
