experienced a sharp rise in the beginning of the year and two rounds of rapid declines and falling below the "7". How will the RMB exchange rate against the US dollar move in the fourth quarter of this year? How will the exchange rate management toolbox play a role next after a sufficiently rich exchange rate management toolbox become the focus of market attention.
As of September 30, the spot exchange rate of RMB against the US dollar fell by 11.3%, and the central price of RMB against the US dollar fell by 11.36%, but the depreciation was lower than the appreciation of the US dollar during the same period (over 16%).
first rose and then depreciated in the first three quarters
RMB exchange rate against the US dollar experienced first rise and then depreciation in the first three quarters of this year.
In the first quarter, the spot exchange rate of RMB against the US dollar once appreciated near the 6.30 mark, setting a new high in the past four years. However, under the influence of the Federal Reserve's tightening policy, the RMB began to decline against the US dollar in April, stabilizing after falling below the 6.80 mark in mid-May.
In the third quarter, after fluctuated in a narrow range, the RMB started a sharp decline against the US dollar on August 15, and broke through the "7" integer mark on the offshore and onshore markets on September 15 and 16, and then fell below the 7.10 and 7.20 marks for a while. The spot exchange rate fell to 7.2458 at the lowest during the session. However, in the last two trading days of the end of the quarter, as financial regulatory authorities distributed peace of mind to the market and the US dollar index fell from a high level, the RMB exchange rate against the US dollar rose sharply, recovering the 7.10 mark.
RMB exchange rate trend against the US dollar in the first three quarters of this year
Tianfeng Securities pointed out that this round of RMB exchange rate depreciated fundamental pricing factors are the monetary policy divergence (capital account) between China and the United States. Against the backdrop of the US hike rate and China's interest rate cuts, the degree of inversion of interest rate spread between China and the US hike rate continues to deepen, and the RMB exchange rate has begun to be under pressure. The second fundamental pricing factor for the decline in exchange rate is the weakening of subsequent export expectations. As overseas enters a rapid rate hike cycle of , the suppression of interest rate hikes and inflation on residents' consumption continues to increase, the market's subsequent export expectations for China have weakened, and after the support for exchange rate appreciation weakens, the RMB enters a rapid depreciation channel.
However, the RMB has performed soundly against major currencies in the United States and is one of the few strong currencies in the world at present.
As of the end of September, the RMB centralized price against the euro in the first three quarters of this year increased by 3.19%, the centralized price against the pound was 7.65%, the centralized price against the Japanese yen was 11.08%, the centralized price for New Zealand dollar mid-price, the centralized price for New Zealand dollar mid-price fell by 6.23%, the centralized price for the Australian dollar fell by 0.16%, the centralized price for the Canadian dollar was 4.07%, the centralized price for Swiss franc mid-price depreciated by 4.64%, and the centralized price for Singapore dollar mid-price depreciated by 5.38%.
The US dollar index and RMB exchange rate in the fourth quarter
When looking forward to the RMB against the US dollar in the fourth quarter, the China Banking Institute believes in the latest "China Economic and Financial Outlook Report" that the RMB exchange rate in the fourth quarter will continue to be under pressure in the short term, but the downward space is limited, and the medium- and long-term trend is strongly resilient. The reasons for the short-term pressure on the RMB exchange rate include: First, the Federal Reserve's pace of hikes in rate continues to rise. Curbing inflation is still the current primary target of the Federal Reserve (US CPI was still as high as 8.3% month-on-month in August), and interest rates are expected to continue to rise in November, and the strong appreciation of the US dollar will increase the pressure on the depreciation of the RMB. Second, weakening of foreign demand has slowed down China's exports, and a decline in trade surplus will lead to pressure on the RMB exchange rate.
The institution emphasized that the RMB exchange rate trend still has strong support: First, the overall market expectations are stable. The exchange settlement rate in August reached 71%, which is the highest level in recent years, with a exchange rate of 67%, which is basically the same as the monthly average since 2022, reflecting the overall stability of market entities' willingness to settle and sell . Second, the scale of foreign exchange reserves is stable and abundant. As of the end of August, China's official foreign exchange reserve assets were US$3054.9 billion, and the balance of various foreign exchange deposits of financial institutions was US$953.7 billion, all of which remained at a high level. This is the "ballast stone" to effectively deal with excessive fluctuations in the RMB exchange rate.
State Administration of Foreign Exchange Deputy Director and spokesperson Wang Chunying also pointed out on the evening of September 29 that the internal foundation of my country's balance of payments balance is still stable, which is also the fundamental support for the stability of my country's foreign exchange market and RMB exchange rate.
"It is expected that after this round of RMB exchange rate has a relatively limited space for subsequent depreciation after rapid adjustments in the previous period. At the end of the year, as the relative position of China-US monetary policies and economic cycles reversal, the RMB exchange rate may be able to stabilize at the level of 7.2 and turn into a volatile fluctuation." Tianfeng Securities judged that the mid-term depreciation span of this round of RMB exchange rate will be significantly narrowed to one-third of the historical average span, that is, about half a year.
Industrial Research pointed out that with the help of the long-term purchase risk reserve rate, the upward rate of the US dollar against the RMB is expected to slow down in the short term and turn to fluctuations; overvalues still need to be repaired in the medium term. The U.S. core is usually sticky, and it is not ruled out that the Fed will raise interest rates to 5% or even higher next year. It is expected that the US dollar index will be stronger at the beginning and end of the fourth quarter, and may consolidate or pull back in the middle of the quarter. The top of the US dollar index is not yet clear and is expected to further impact 116 or even 121.
CITIC Securities Research Department believes that the current differences in the fundamentals of the United States and Europe are still the core factors affecting the exchange rates of the United States and Europe. Coupled with the Federal Reserve's continued hawkish monetary policy stance, the US dollar index will continue to run strongly, and may rise to around 120 of the previous round of highs at the end of this year or early next year. In the short term, under the influence of the Federal Reserve's continued hawkish stance and the continued high inflation, it is expected that the 10-year US bond yield will fluctuate in the short term and may show a certain upward trend. However, as the US economy gradually weakens and may fall into a substantial recession in the second half of next year, the 10-year US bond yield may have a downward trend in the medium and long term.
exchange rate management tool How to deal with
Faced with the intensified volatility of the RMB against the US dollar this year, the central bank lowered the foreign exchange deposit reserve ratio twice in April and September, and raised the foreign exchange risk reserve ratio from 0% to 20% on September 26.
"The central bank mainly intervenes in the market's irrational expectations and panic. Since the RMB exchange rate elasticity is still limited, once the depreciation of the US dollar is large, it is easy to trigger unilateral depreciation expectations and panic in the market, and cause a greater degree of depreciation. The central bank's intervention can dispel this self-reinforcement expectation and cut off the self-realization of market expectations." Guolian Securities pointed out in the research report.
China Securities pointed out that at this stage, the central bank has taken policy measures such as adjusting the foreign exchange deposit reserve ratio and forward foreign exchange sales risk reserves, but the above policies belong to the operational category, and may be able to control the depreciation slope in the short term, making it difficult to reverse the depreciation expectations; policy tools to reverse the depreciation expectations in the future can be observed from the short term and medium term: at the short-term operation level, policy tools may include strengthening the offshore market intervention capabilities and accelerating the internationalization of the RMB; at the medium-term operation level, policy tools may include further strengthening stable growth and enhancing the elasticity of prevention and control measures; further increasing infrastructure investment (equipment update and transformation), broadening infrastructure boundaries upward ( Starlink ), downward (underground space), outward (seawater desalination, sea breeze power generation); exploring new transfer payment tools to increase residents' consumption capacity.
