NO.124
2020.06.06
You don’t need to know everything, but you must know more than others in a certain aspect.
—George Soros
//
- Preface -
Since the outbreak of the new crown epidemic in the United States, the Federal Reserve has proposed a series of quantitative easing policies to deal with the epidemic and support the recovery of the United States' economy. The easing intensity is even worse than that in China, and the current epidemic in the United States has not yet been significantly and effectively curbed compared with China and Europe. However, the RMB exchange rate against the US has recently returned to the depreciation channel. On May 27, the offshore RMB exchange rate against the US dollar depreciated sharply by 0.42%, reaching the high of 7.1954 during the session, close to the level of the United States' claim in September 2019 that it would impose a comprehensive tariff on China and would be listed as a exchange rate manipulator. So, what is the reason behind the recent depreciation of the RMB? What factors will the future exchange rate show what trends will it show? This article will explain this issue in two articles:
(Part 1)
√ RMB exchange rate trend review from 1949 to the new crown epidemic
√ Exchange rate decision theory sorting
(Part 2)
√ Exchange rate influencing factors analysis framework
√ RMB trend review after the epidemic in 2020
√ Future exchange rate trend outlook
Source: wind, Watermelon Finance Information
Source: wind, Watermelon Finance Information
Overall, the future exchange rate trend of China-US will mainly depend on the comparison of the economic situation of the two countries and the trade friction game. Among them, economic growth rate is still the main line, and Sino-US relations are mainly emotional disturbances, so the appreciation of the RMB in the medium and long term is still a major trend. However, if China-US relations will further escalate in areas other than import and export trade, such as education, investment, science and technology, politics, etc., and this contradiction transforms from emotions to actual economic shocks, the main line and direction of the RMB exchange rate trend may change again, and we will continue to pay attention.
- Review of the RMB exchange rate trend from 1949 to the new crown epidemic -
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RMB was issued since 1948, and the exchange rate system has undergone 7 major adjustments since then. At the same time, the RMB exchange rate in each stage of history has different characteristics due to different systems, different economic performances, and different international situations. Therefore, this section will summarize and analyze the exchange rate trends between 1949 and 2019.
Source: Founder Securities
Source: wind, Xigua Finance Information
949-1952: Volatility adjustment
In the early days of the founding of the People's Republic of China, a highly flexible and market-oriented exchange rate system arrangement was implemented, and the exchange rate was continuously adjusted according to the domestic and foreign price levels.
953-1972: Fixed interest rates remain unchanged
began to implement the planned economic system, strictly adopting the official fixed exchange rate, and the exchange rate remain unchanged.
973-1980: Steady rise
Bretton Woods system collapsed, countries shifted their reserve assets from the US dollar to gold, the US dollar continued to depreciate externally, and the RMB exchange rate entered an appreciation channel. But at the same time, the trade deficit intensified, imports exceeded exports, and foreign exchange reserves were in short supply.
Source: wind, Xigua Finance Information
981-1984: Rapid depreciation
implements a dual exchange rate system that parallels trade exchange rates and non-trade exchange rates. The former is specifically used for the settlement of import and export trade. With the advancement of reform and opening up to the outside world, the problem of overvaluation of the RMB in the planned economy era has become more obvious and externalized. The official has made a downward adjustment to the exchange rate based on China's international status and trade situation.
985-1993: Accelerating the depreciation of
cancels the dual exchange rate system, the official exchange rate implements a managed floating, and at the same time conducts foreign exchange adjustment business. The foreign exchange adjustment exchange rate coexists with the official exchange rate, and the exchange rate remains in a downward state.At this stage, Eastern Europe changed drastically, the collapse of the Soviet Union, and the international communist movement fell into a low point, and Western countries frequently imposed so-called sanctions and curb reforms on my country; while the domestic economic growth rate performed poorly, the debate over reform and opening up intensified, and the RMB depreciation accelerated.
994-June 2005: Maintain stability, narrow fluctuations, and merge the official exchange rate of RMB2
RMB and foreign exchange adjustment exchange rate, forming a single, managed floating exchange rate based on market supply. When the merger is completed, the RMB exchange rate was adjusted to RMB 8.70 against USD 5.79, a one-time depreciation of 50.3%. Since the central bank led the establishment of a closed loop of foreign exchange settlement and sale of "private sector-bank-central bank", its control over monetary policy and exchange rate has increased, and the exchange rate between China and the United States has basically maintained stability within about 10 years and can only float within a very narrow range of 8.27 to 8.28 yuan. This stable and cheap exchange rate effectively promoted exports and attracted overseas investment, and the trade deficit situation was reversed. After joining the WTO in 2001, China's foreign exchange reserves increased rapidly.
Source: wind, Watermelon Finance Information
Source: wind, Watermelon Finance Information
July 2005-July 2015: Continuous appreciation
As China's foreign exchange reserves increase, the international community's demand for the appreciation of the RMB is becoming stronger. In July 2005, the central bank officially announced the abolition of the exchange rate policy that originally focused on a single dollar, and began to implement a managed floating exchange rate system based on market supply and demand, based on a basket of currencies, and introduced in 2006 to trade inquiry and market maker system, improving the way the RMB exchange rate mid-price was formed.
August 2015-2016: Continuous depreciation
After 2011, the US economy has fully recovered, real estate began to recover, the mobile Internet industry is leading the world, and at the same time, the US QE has gradually normalized and the expectation of interest rate hikes has risen, and the US dollar has continued to appreciate compared with other countries. As the domestic currency is over-issuance, housing prices have risen sharply, and the RMB is under pressure to overvalue the RMB. Therefore, after the exchange rate reform of 811 in 2015, the RMB entered a one-and-a-half depreciation range, and capital began to flow out on a large scale.
Source: wind, Watermelon Finance Information
017-April 2018: Accelerating appreciation
Entering 2017, the central bank bought a large amount of RMB in the offshore foreign exchange market and sold US dollars. At the same time, the " countercyclical factor " was introduced into the exchange rate mid-price pricing mechanism. In addition, the new policy of Trump was lower than expected. Against this background, the expectation of unilateral depreciation of the RMB exchange rate was gradually resolved and reversed, and this appreciation trend continued until April 2018.
May 2018-November 2018: Accelerated depreciation
As the US fundamental data continues to improve, the pace of interest rate hikes in the Federal Reserve accelerates. At the same time, Trump’s tax cuts and infrastructure investment stimulate capital reflux, and the attractiveness of US dollar assets has increased; international trade protectionism escalates, global liquidity further tightens, market panic intensifies, and US dollar capital is accelerating.
December 2018-May 2019: Slight appreciation
Expectations of US recession increase, and the market predicts that the Federal Reserve will end interest rate hikes ahead of schedule. At the same time, the interest rate spread between China and the United States has stabilized at a low level. Combined with the support of foreign exchange macro-prudential management, the RMB appreciates slightly.
June 2019-August 2019: Accelerate depreciation
At this stage, Trump claimed to impose tariffs and the RMB started a new round of depreciation. On August 6, the central bank announced that it would issue RMB central bank notes in Hong Kong. The offshore RMB against the US dollar has been stabilized, and the attempt to short the RMB has been curbed again.
September 2019-December 2019: Slight appreciation
htmlSince September, domestic fundamentals have gradually stabilized, financial market opening measures have also been gradually introduced, and cross-border capital inflows have formed effective support for the RMB.- Comprehensive exchange rate decision theory -
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. The first exchange rate determinism
. Public evaluation theory
Background: html In the 215th century, with the opening of new routes, trade between internationals became more frequent. During this period, Rodol Persia proposed the public evaluation theory, also known as the supply and demand theory.
Content: exchange rate depends on the changes in the supply and demand of the two countries, and the changes in supply and demand depend on people's evaluation of the currencies of the two countries, and the evaluation depends on the purity, weight and market value of the precious metal components contained in the currencies of the two countries.
2. gold standard degrees exchange rate decision
Before World War I, international economic exchanges were mainly trade activities, and the proportion of capital flow was relatively low. Under this background and gold standard system, the exchange rate is mainly determined by the parity of coin mints .
, coin parity theory
Background: Under the gold standard, countries stipulate in the form of legal provisions of the weight and color of gold contained in each gold coin unit. In the 18th century, David Hume proposed the theory of coin parity in "On Trade Balance".
Content: exchange rate determines the basis of coin parity, so the exchange rate fluctuates around coin parity, and the upper and lower limits of fluctuation are the gold conveying point.
defect: cannot explain the exchange rate decision under the banknote standard system.
., International lending theory
Background: appeared and prevailed during the gold standard period, and was proposed by Gosen in 1861.
Content: coin parity is legal and generally does not change easily, but the actual exchange rate of is determined by the supply and demand relationship in the foreign exchange market. Foreign exchange supply and demand are derived from international lending, mainly due to changes in liquid lending.
defect: did not specify which factors affect foreign exchange supply and demand.
3. Exchange rate decision under the banknote standard system
After the First World War, the gold standard collapsed, the banknote standard began to prevail, and the international capital flow rate accelerated. After World War II, the Bretton Woods system was established.
. Purchasing power parity theory
Background: 914, the First World War broke out, the gold standard collapsed, and the issuance of currencies in various countries broke free from the shackles, resulting in soaring prices and violent fluctuations in exchange rates. In 1922, Swedish Swedish scholar Cassel proposed the theory of purchasing power parity, which mainly studies the commodity market between the two countries, and thus can better explain how medium- and long-term interest rates are determined.
Content: The exchange rate between two currencies depends on the ratio of the purchasing power of the currencies of the two countries (absolute purchasing power parity theory), and the change in the exchange rate depends on the change of the purchasing power of the currencies of the two countries (relative purchasing power parity theory). Relative purchasing power parity means that the exchange rate rises and falls are determined by the inflation rates of the two countries.
defect: only considers tradable goods, does not consider untradable goods, trade costs, trade barriers, and capital flows. It overemphasizes the role of prices on exchange rates and ignores the reflexive impact of exchange rates on prices.
. Interest rate parity theory
Background: 923 was systematically explained by Keynes , mainly studying the financial markets between the two countries, and thus better explain how short-term interest rates are determined.
Content: The short-term interest rate return obtained by investors investing in China should be equal to the short-term investment return obtained by converting foreign exchange to foreign exchange at spot exchange rate and buying back the domestic currency at forward exchange rate. Once there is a difference in investment returns caused by the difference in interest rates between the two countries, investors will engage in arbitrage activities. The difference between forward exchange rates and spot exchange rates is approximately equal to the interest rate difference between the two countries.
defect: ignores foreign exchange transaction costs, assumes that there is no obstacle to capital flow, assumes that the scale of arbitrage capital is infinite, artificially assumes in advance that investors pursue equal short-term investment returns in the two countries.
, Exchange Psychology Theory
Background: 927 proposed by Aftalion.
Content: The decision and change of the exchange rate stems from people's subjective evaluation of the foreign exchange effect.
defect: is difficult to test and apply, and the theoretical foothold is too subjective.
. International Balance of Payments Theory
Background: 944 to 1973, countries implemented a fixed exchange rate system.
Content: Assume Y and Y' are the national income of the country and the foreign country respectively, P and P' represent the general price level of the country and the foreign country respectively, i and i' are the interest rates of the country and the foreign country respectively, e is the exchange rate of the country and the foreign country, and Eef is the expected exchange rate. The deduction is as follows:
Balance of Payments Current Account CA = f1(Y,Y',P,P',e)
Balance of Payments Capital and Financial Account K = f2(i,i',e,Eef)
If CA+K=0, that is, f1(Y,Y',P,P',e)+ f2(i,i',e,Eef)=0, then e = g(Y,Y',P,P',i,i',Eef), that is, the exchange rate is affected by the national income, price level, and interest rates of the two countries mentioned above.
. Asset Market Say
Background: 973, the Braden Forest System disintegrated, the fixed exchange rate system collapsed, and the floating exchange rate system was implemented. At the same time, the international financial market developed rapidly and the exchange rate showed more characteristics of financial products.
Elastic price currency analysis method
National income level, interest rate level and money supply level between the country and foreign countries determine the exchange rate level through its impact on their respective price levels.
sticky price currency analysis method, i.e. overshoot model,
Due to the existence of price stickiness in the commodity market, when the money supply increases at one time, the instantaneous depreciation of the local currency is greater than its long-term depreciation, that is, the overshoot of the exchange rate.
Asset portfolio analysis method
Supply and demand balance between local currency assets and foreign exchange assets is investigated in two independent markets. The total amount of assets of a single country = is determined by the national currency + domestic bonds + foreign bonds. Only when all three markets are in a equilibrium state will the country's asset market be in a equilibrium state as a whole.
4. Equilibrium exchange rate theory with fundamentals as the core
Basic elements Equilibrium exchange rate theory
In the case of full employment, the current account is consistent with sustainable capital flows (i.e., macroeconomic equilibrium). The internal equilibrium is the output level when full employment is consistent with low, sustainable inflation rates. External equilibrium takes into account the willing, sustainable net flow of capital that arises between countries.
Behavior equilibrium exchange rate theory
core is a function of interpreting the actual effective exchange rate as a vector of economic basic factors with long-term sustained effects, a vector of economic basic factors that affect the real exchange rate in the medium term, a vector of temporary factors that affect the real exchange rate in the short term, and a function of random perturbation terms.
Natural equilibrium exchange rate theory
Without taking into account cyclical factors, speculative capital flows and changes in international reserves, the medium-term actual equilibrium exchange rate that can equilibrium the balance of payments
Equilibrium real exchange rate theory
The movement of the actual exchange rate is a function of variables such as the terms of trade, the ratio of non-traded goods consumed by the government to gross domestic product (GDP), tariff levels, technological progress, capital flows, and the ratio of investment to GDP.
- Framework for analysis of exchange rate influencing factors -
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Source: Xigua Finance Information
Source: Mainland Futures
. Long-term exchange rate determinants
. Economic fundamentals
From a long-term perspective, the equilibrium exchange rate theory with fundamentals as the core can best represent the exchange rate influencing factors.
The most basic factor affecting exchange rate fluctuations is economic growth. The rate of economic growth represents the speed of a country's wealth acquisition, and capital flows into economies that can achieve higher returns driven by profitability. Decompose factors of economic growth, and rising expenditures will stimulate investment, production and thus enhance the competitiveness of domestic products, while increasing exports will promote the appreciation of the local currency. Although the growth of income will also drive imports and lead to depreciation of the local currency, economic growth can have a positive impact on the subjective evaluation of the domestic currency under the psychology of exchange, and therefore overall it is conducive to the appreciation of the currency.
From the comparison of economic growth rates and exchange rate trends between the United States, Europe, the United States and Japan, the United States and China, it can be seen that the higher the economic growth rate of countries, the more they are, the more they are, the more they are, the more they are, the more they are, the more they are, the more they are, the more they are, the more they are, the more they are, the more they are, the more they are, the more they are, the more they are, the more theyFor example, after 2008, the US economy continued to recover, while Japan's economic growth rate was at a continuous low, and the US-Japan exchange rate appreciated significantly. From the perspective of the comparison between China and the United States, after 2005, the domestic abolished the exchange rate policy that originally focused on a single dollar, and implemented a floating exchange rate based on supply and demand, reference a basket of currencies, and managed floating exchange rates. Since then, the economic growth rate of China and the United States has shown obvious correlation between the trend and the exchange rate. For example, from 2005 to 2009, China's foreign exports grew rapidly, domestic real estate, as a pillar industry, and its economic growth rate was ahead of the United States. During this period, the RMB continued to appreciate against the United States.
Source: Mainland Futures
Source: Mainland Futures
Source: Wind, Watermelon Finance Information
. Factors influencing medium-term exchange rate
, International balance of payments
balance of payments
balance of payments
balance of payments is divided into current account and capital account. Current accounts mainly include trade income and expenditure, labor income and expenditure, etc. When exports are greater than imports, foreign exchange reserves will increase accordingly, which will lead to the appreciation of the local currency. Under capital projects, they mainly include direct investment, various loans, securities investments, etc. If a country has great economic growth potential and supports higher capital returns, it will attract overseas capital inflows.
Source: CICC Securities
, Monetary Policy
Currency scarcity can often affect the strength of a country's currency. Therefore, the exchange rate between the two countries will be affected by the relative tightness of the monetary policies of the two countries.
Considering the history of global economic development and the international macro status of the United States, the US dollar is still the world's most important reserve, circulating and clearing currency, so its monetary policy and changes have far-reaching impacts. For example, after 2007, the United States cut interest rates 11 consecutive times due to the financial crisis, while China, Japan and Europe are all in a cycle of interest rate hikes, which led to a sharp strengthening of non-US currencies.
Source: Mainland futures
The impact of interest rates on exchange rates can also be attributed to monetary policy, high-interest-rate countries' capital inflows, currency appreciation; low-interest-rate countries' capital outflows, currency depreciation. Comparing the difference in yields between China and the United States' 10-year Treasury bonds, it is obvious that the inverse relationship with the exchange rate is shown.
Source: wind, Watermelon Finance Information
, Inflation
(1) Inflation will reduce the value and purchasing power of the local currency. Under the purchasing power parity theory, the local currency will depreciate due to inflation.
(2) Inflation will weaken the credit status of the domestic currency in the international market, leading to depreciation through the principles of exchange psychology theory.
From the data from 1996 to 2017, the inflation level of consumer core countries is generally low and the exchange rate performance is strong, mainly because as a currency issuing country, it can transmit inflation to the world. The core manufacturing countries and core resource countries have weak exchange rates due to high inflation levels.
Source: Mainland futures
For example, the United States has had a high inflation in the three oil crises, while the US dollar index fell sharply.
Source: Mainland futures
Before 1995, China experienced relatively serious inflation in China from 1987 to 1989 and 1993 to 1995, resulting in a sharp depreciation of the exchange rate against the United States. Since the promulgation of the People's Bank of China Law in 1995, currency issuance has changed from fiscal-led to central bank-led, and CPI has obviously fallen from a high level. Since 2010, it has basically remained near 3, close to the level of developed countries. Although the upward trend has been large since the second half of 2019, it is mainly related to food prices and has limited impact on the overall currency value of the country. Therefore, domestic inflation and exchange rates do not show a significant trend relationship, but it is obvious that maintaining a low level and stable price will help support the appreciation of the local currency.
Source: wind, Xigua Finance Information
, fiscal policy
0 When the fiscal deficit expands, the total demand will increase, which will in turn bring about an intensified balance of payments deficit and inflation, resulting in currency depreciation.
. Short-term exchange rate disturbance factors
. Psychological factors
Since there are many participants in the foreign exchange market, their expectations of foreign exchange trends will affect the short-term exchange rate trend. The exchange psychology theory can more effectively explain the fluctuations in short-term exchange rates, but this factor changes quickly and is difficult to measure. With the accelerated dissemination of information and the development of financial markets, the impact of this factor on exchange rate has gradually become normalized.
. Economic crisis
Economic or financial crisis often causes severe short-term exchange rate fluctuations. For example, in 2008, the fluctuations in the US dollar index increased significantly. For example, from 1997 to 1998, Russia experienced a financial crisis caused by three major financial turmoils, and the exchange rate also fluctuated significantly.
Source: wind, Watermelon Finance Information
Source: Mainland Futures
. Politics and emergencies
The political situation and emergencies in a country or international community may have an impact on the exchange rate through the above long, medium and short-term factors, especially in the short-term or ultra-short-term period. Due to the increase in uncertainty, it will cause major disturbances to the exchange rate. For example, the UK's "Brexit Referendum" in 2016, both the pound and the euro depreciated sharply against the US dollar. For example, the outbreak of war after the 1980s had a significant impact on the US dollar exchange rate.
Source: Mainland Futures
Source: Mainland Futures
, Speculation
Since major capitalist countries implemented the floating exchange rate system in 1973, foreign exchange speculation has become more frequent, resulting in increased exchange rate fluctuations. For example, in 1992, Soros shorted the pound a lot, and the pound fell sharply from 2 to 1 against the US dollar.
Source: Mainland futures
, Central Bank foreign exchange intervention
When there is abnormality in the domestic exchange rate, such as continuous, large, and fluctuating in the same direction, the central bank may directly engage in foreign exchange trading, indirectly interfere with the foreign exchange market through monetary policy influence, or may also guide market expectations by issuing a statement. At the end of May 2017, in order to adapt to the pro-cyclical fluctuations of market sentiment and buffer the possible "herd effect" in the foreign exchange market, the RMB mid-price pricing model introduced a "counter-cyclical factor" based on the market-oriented principle, and adjusted to: "closing price + a basket of currency exchange rate changes + counter-cyclical factor" to stabilize market expectations.
- Review of the trend of RMB after the epidemic in 2020 -
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Starting from September 2019, domestic fundamentals have gradually stabilized, and financial market opening measures have also been gradually introduced. Cross-border capital inflows have formed effective support for the RMB, and the RMB exchange rate against the United States continues to strengthen. However, in 2020, the new crown epidemic has had a significant impact on the normal development track of the global economy, and the trends of various types of assets fluctuate greatly, and the trend of the Sino-US exchange rate has also reversed. Especially since May, the US stock market and the recent Sino-US exchange rates have clearly deviated from fundamentals.
Source: wind, Watermelon Finance Information
, from the beginning of the year to early January
The first phase of the Sino-US agreement was signed in January, external uncertainty has eased, the US dollar index has not changed much, but the RMB has strengthened unilaterally against the United States. The exchange rate at this stage is mainly dominated by domestic factors.
, from mid-January to early February
China's new crown epidemic broke out rapidly, the social order and economic situation fell into great uncertainty, and the RMB depreciated rapidly. The exchange rate at this stage is also mainly dominated by domestic factors.
Source: wind, Watermelon Finance Information
, from mid-February to early March
Domestic epidemic has gradually been controlled, and the RMB expectations have gradually stabilized; while the Federal Reserve cut interest rates for the first time, the market's expectations of looseness for the United States have increased sharply, and the RMB exchange rate has been passively appreciated. At this time, since the domestic epidemic is basically controllable, the exchange rate is mainly affected by the US epidemic and monetary policy.
, from mid-March to late March
January to February 2020 economic data show that the impact of the epidemic exceeds market expectations, and the central bank shows its determination not to stimulate the economy in the short term through real estate and other means.At the same time, global financial assets are under strong selling pressure, US dollar demand expands rapidly, and capital returns to the United States from abroad under the "dollar shortage". After the Federal Reserve cut interest rates to zero on March 15, the US dollar index reversed in a V-shaped reversal, and the RMB also began to depreciate rapidly against the United States during this period. At this time, the exchange rate is mainly affected by global risk aversion sentiment.
, from early April to mid-May
Sino-US trade friction escalates, and every intensified Sino-US trade conflict in history will put pressure on the RMB depreciation, such as from May to November 2018 and June to August 2019. The exchange rate during this stage is mainly disturbed by the trade relations between the two countries , and the RMB overall depreciates in fluctuations.
, from late May to the end of May
Sino-US relations have become more tense: the Hong Kong National Security Law is passed, and the US Department of Commerce has included many companies in the entity list. Although the US dollar index fluctuated during this stage, the rise and fall were not obvious, and the unilateral depreciation of the RMB was relatively rapid, and was still mainly affected by Sino-US relations.
, from the end of May to the present,
Although the United States has canceled preferential trade treatment for Hong Kong, the market found that its impact on exports was limited, and negative market expectations have eased. In 2019, Hong Kong's local exports to the United States were worth about US$4.7 billion, accounting for a relatively low proportion of China's overall exports, while the goods re-exported by the mainland through Hong Kong are regarded as mainland exports and do not enjoy zero tariff treatment.
In addition, on June 5, the State Administration of Foreign Exchange held a meeting to emphasize exchange rate stability, while the central bank began to guide market exchange rate-related expectations. Considering the development of the epidemic in the United States and social unrest, many Feds have made dovish remarks. In addition, the US economy is performing in a normal manner, and the US dollar has declined significantly. At this stage, the RMB has depreciated from declining, and the external influence has weakened marginally.
- Future exchange rate trend outlook -
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From the key elements of the exchange rate analysis framework, future exchange rate trends:
, economic fundamentals
In the medium and long term, the exchange rate still mainly depends on the economic growth level of the two countries, and a strong economy is a strong support for the country's currencies.
Before the impact of the new crown, the trend of China's economy bottoming out and stabilizing was relatively clear. After the epidemic, the sharp depreciation of the RMB in the first quarter has greatly digested the impact of the epidemic on the economy. At present, China's epidemic control and economic recovery speed are ahead of the world. Recent economic data show a trend of sustained economic recovery, such as the rebound of trade surplus data in April and May. Moreover, the epidemic in major economies in the world except the United States has entered a stable period, which will also help the stabilization of China's import and export data.
Source: wind, Xigua Finance Information
Source: Huatai Securities
Currently, the number of people in the United States is more and the scope is wider. At the same time, social unrest under recent ethnic conflicts has intensified, further dragging down economic stability.
Source: wind, Xigua Finance Information
Therefore, the misalignment of the epidemic stage between China and the United States has led to a difference in the economic growth rate between China and the United States, and this difference will further support domestic asset returns and facilitate the stabilization and recovery of the RMB currency. From the medium term, the volatility range is expected to rebound to the center of 7. Currently, judging from the difference in yields of ten-year Treasury bonds, China and the United States still have a difference of more than 300BP.
Source: wind, Xigua Finance Information
However, the United States' attitude towards China in the year of the election is usually more negative, and it is not ruled out that the relationship between the two countries will continue to deteriorate in the third and fourth quarters. However, the reflection of market sentiment on Sino-US frictions is gradually digesting, and only subsequent changes beyond expectations can affect the medium- and long-term trend of the exchange rate.
, monetary policy
The exchange rate between the two countries will be affected by the relative tightness of the monetary policies of the two countries. The progress of US economic and social recovery will be weaker than that of domestic countries, and recent remarks by Federal Reserve officials are more dovish. In contrast, in China, the central government's capital price center has shifted significantly from mid-May to stimulating the normalization of the economy from liquidity to paying attention to idle funds in the financial system and the credit of small and micro enterprises; domestic short-term monetary policy is tightening marginally, and the medium-term monetary easing method will be more "precise drip irrigation".Therefore, from the comparison of China-US monetary policies, the appreciation of the RMB will still be supported in the future.
Source: wind, Xigua Finance Information
, International Balance of Payments
In the short term, the deterioration of Sino-US relations and the spread of the overseas epidemic still have an impact on the balance of payments, which in turn increases the pressure on the depreciation of the RMB. However, judging from the April and May data, the trade surplus data rebounded strongly, and under the premise of misalignment in the epidemic stage between China and the United States, current accounts are expected to recover faster in the future. Capital accounts are expected to continue to improve against the background of multiple openings of the domestic capital market, higher returns on domestic assets, and increased expectations of continued inflows of foreign capital, which are all conducive to supporting the strengthening of the RMB. However, we still need to be wary of the larger and greater depth of the impact of the marginal deterioration of Sino-US relations, such as further upgrading from trade to education, investment, science and technology, and politics.
Overall, the future exchange rate trend of China-US exchange rate will mainly depend on the comparison of the economic situation between the two countries and the game of trade frictions. Among them, economic growth rate is still the main line, while Sino-US relations are mainly emotional disturbances, so the appreciation of the RMB in the medium and long term is still a major trend. However, if China-US relations will further escalate in areas other than import and export trade, such as education, investment, science and technology, politics, etc., and this contradiction transforms from emotions to actual economic shocks, the main line and direction of the RMB exchange rate trend may change again, and we will continue to pay attention.
- Postscript -
Follow-up, Xiaoka will not only update market analysis views, but will also launch tips for improving financial analysis efficiency using tools such as Excel (VBA), python, etc. from time to time. Everyone is welcome to follow the official account to discuss and share.
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