Introduction to the introduction
On September 16, both the onshore and offshore RMB exchange rates against the US dollar fell below the integer mark of "7". The market has long expected this, but the "psychological barrier" of exchange rate , which has been paid attention to for a long time, has still attracted a lot of attention and discussion.
"Foreign exchange deposit "reserve reserve requirement cut"
RMB exchange rate fell below the "7" mark"
On September 5, my country's Central Bank decided to lower the foreign exchange deposit reserve ratio of financial institutions by 2 percentage points from September 15, 2022, that is, the foreign exchange deposit reserve ratio has been lowered from the current 8% to 6%, releasing about US$19 billion in foreign exchange liquidity. This is the second time since April has lowered its foreign exchange deposit reserves. This move conveys a clear policy signal: release US dollar liquidity, increase the supply of US dollar relative to the RMB, thereby stabilizing market expectations for RMB depreciation.
But this measure cannot fundamentally change the weakness of the RMB relative to the US dollar.
is the main reason for the US dollar to continue to maintain its strength. At present, the US inflation rate is at a high level, which means that Federal Reserve still has a long way to go to fight inflation. Since the beginning of this year, the Federal Reserve has raised interest rates by 4,225 basis points, and it is imperative that the Federal Reserve continues to raise interest rates.
In addition to the Fed rate hike , the dollar index , which is a safe-haven currency, has also caused the US dollar to remain strong in the short term due to geopolitical conflicts and the global economy facing recession. RMB exchange rate is highly correlated with the US dollar index, indicating that the RMB exchange rate is likely to be under short-term pressure.
On the other hand, the impact of policy intervention may become increasingly weak. Central bank intervention has always been an important volatility factor in the exchange rate market, but policy intervention cannot reverse and can only delay the trend of exchange rate changes. Release the limited scale (about 19 billion US dollars) of US dollar liquidity and cannot change the global US dollar supply and demand pattern.
Furthermore, after 2016, the central bank basically withdrew from normalized policy intervention, and its impact on exchange rates has become increasingly indirect. For example, in the face of the ups and downs of the RMB exchange rate after the epidemic, the central bank did not conduct direct trading, but mainly guided by adjusting the foreign exchange reserve ratio, adjusting the cross-border investment and financing coefficient of financial institutions and the few windows. Most of these policies must be made decisions and behavioral choices based on the economic situation in order to affect the exchange rate. Therefore, the policy intervention factor is no longer the main factor in judging the trend of the RMB exchange rate. The current exchange rate fluctuations affect the whole body, and the meaning of stabilizing market sentiment is even stronger.
View the RMB exchange rate "breaks 7" with a normal mind
Exchange rate experts believe that it is meaningless to be obsessed with breaking "7" . Exchange rate is a market variable, and this number itself does not have much significance.
Moreover, as the US dollar index continues to strengthen, most other non-US dollar currencies have depreciated to varying degrees. Compared with the currencies of major developed economies such as the pound, the euro, and the Japanese yen, the depreciation rate of the RMB is relatively small. Overall, the RMB exchange rate index is relatively stable. According to Wind data statistics, as of September 14, the US dollar index rose 14.92% this year, while the RMB exchange rate against the US dollar fell 9.56% during the same period, while the euro, Japanese yen and pound depreciated by 12.19%, 24.14% and 14.7% against the US dollar respectively.
has always been regarded as an important psychological barrier, and the RMB exchange rate has also broken "7" many times. For example, in August 2019 and May 2020, the RMB exchange rate broke the "7" due to trade frictions and epidemic factors respectively. But as early as 2019 when the RMB broke the "7", a relevant person in charge of the central bank said that the RMB exchange rate "breaks 7". This "7" is not age, it cannot come back in the past, nor is it a dam. Once it is broken through the flood, it will plummet thousands of miles; "7" is more like the water level of a reservoir. It is higher during the water-rich period and , and it will fall again during the dry period. It is normal for both rise and fall.
After "breaking 7" in August 2019, the RMB exchange rate has opened up and down elastic space.Now, both the government and the market have greatly enhanced their tolerance and adaptability to exchange rate two-way fluctuations and wide range of fluctuations. This can be confirmed by recent market performance: this round of decline in the RMB exchange rate since August 15 has not been accompanied by market panic. Even if
breaks the "7", it is inevitable that the domestic economy will stabilize and the US dollar index will fall back with the use of some tools and then rise back to the "6" range.
The subsequent trend of the RMB
The future RMB exchange rate trend depends on the trend of the US dollar, and it is necessary to observe the pace of future US inflation and interest rate hikes; on the other hand, it depends on the growth rate of domestic economic. We believe that with the implementation of a series of policies to stabilize growth, the domestic economy is expected to rebound to a certain extent in the third quarter, which will help stabilize the trend of the entire RMB exchange rate.
Economists said: The RMB does not have a basis for continuous depreciation. From the perspective of domestic economy, it is expected that the growth rate of GDP in the third quarter will rebound significantly compared with the second quarter, and the inflation level is moderate and controllable; on the international side, the foreign exchange market is operating normally, cross-border capital flows are orderly, and the balance of payments is good, especially the basic balance of payments projects such as current accounts and direct investments maintain a high surplus. Although the spillover effect of US monetary policy has been affected, the impact is controllable. This is due to the fact that China's economy has not changed its long-term positive fundamentals and its economic resilience is relatively strong. In addition, thanks to the continuous deepening of the exchange rate system reform based on market supply and demand, the elasticity of the exchange rate has also been significantly enhanced.
The pressure to depreciate against the US dollar in the short term still exists. In the short term, the US dollar index still has a certain upward momentum . Judging from historical experience, after the Federal Reserve enters a cycle of interest rate hikes, the upward momentum of the US dollar index will gradually weaken. But at present, the market still has expectations for the Federal Reserve to further accelerate the pace of interest rate hikes, while the hawkishness of central banks in other major countries is significantly lower than that of the Federal Reserve, which gives the US dollar index momentum to further rise this year. On September 22 (Beijing time), the Federal Reserve will announce the results of a new round of interest rate resolution, resulting in a subsequent adjustment of market expectations, which will further support the strengthening of the US dollar. rate hike is expected to be under . In recent weeks, except for the US dollar, Asian currencies, global stock markets and bond markets have all been falling.
For the long-term trend of the RMB, two-way fluctuations have gradually become the norm. People's Bank of China Deputy Governor Liu Guoqiang said that the world's recognition of the RMB will continue to increase in the future. In the short term, two-way fluctuations should be a normal state, and there will be no " unilateral market ". He also said that the exchange rate point is not accurate, so don’t bet on a certain point. "Reasonable balance and basic stability are what we like, and we also have the strength to support it. I don't think anything will happen, and I am not allowed to happen." China's monetary policy will continue to focus on "me" and maintain a steady and take into account internal and external balance. It is expected that the RMB will maintain a reverse volatility pattern similar to the trend of the US dollar index this year. In this process, there is no point that must be held. The real important thing is to keep the RMB exchange rate index basically stable.
If the RMB exchange rate shows abnormal fluctuations that deviate from the trend of the US dollar index, the central bank has sufficient tools to stabilize the exchange rate. In addition to lowering the foreign exchange deposit reserve ratio, it can also announce the restart of the countercyclical factor in a timely manner, raise the foreign exchange risk reserve ratio, increase the issuance scale of central bills in the offshore market, and strengthen cross-border capital liquidity management and other measures. With the continuous improvement of the RMB exchange rate formation mechanism of , , the RMB exchange rate elasticity is increasing, and two-way fluctuations against the US dollar are the norm.
Junyu Perspective
Exchange rate fluctuations have a whole-body impact on the asset market, and have a direct negative impact on the stock market's risk premium . In the environment where the global economy is facing recession and inflation , Junyu Asset focuses on various risk hedging models and devotes itself to studying foreign exchange arbitrage strategies. We adjust our strategy models in a timely manner according to market changes, strive to do a good job in risk management, and better adapt to the market and meet investor needs.
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