Data from the China Foreign Exchange Trading Center shows that on September 28, the RMB mid-price against the US dollar was 7.1107, a 385 point lower, hitting a new low since June 2, 2020.

In recent days, the RMB exchange rate against the US dollar has become the focus.

Data from China Foreign Exchange Trading Center shows that on September 28, the RMB mid-price against the US dollar was 7.1107, a 385 point lower, hitting a new low since June 2, 2020. After the mid-price was released, the offshore RMB exchange rate against the US dollar, which reflects more expectations from international investors, continued to fall. At 9:30 on September 28, the spot exchange rate of RMB against US dollar opened at 7.1800, and then fell below the 7.20 mark, which was the first time since February 2008.

data shows that in about one month since August 15th, the offshore RMB exchange rate against the US dollar has fallen by more than 2,600 basis points, a drop of more than 3.88%.

htmlOn September 7, the offshore RMB hit 6.99 against the US dollar, just one step away from "breaking 7". From September 12 to 13, the onshore RMB and offshore RMB exchange rate rebounded briefly and once returned to the 6.92 level, but began to fall again in the following two days.

The last time the offshore RMB exchange rate against the US dollar "breaks 7" occurred on March 12, 2020, and once reached a low of 7.1954 on May 27 that year. It was not until mid-July that year that it returned to the "6 era". Previously, the offshore RMB exchange rate against the US dollar also "breaks 7" in August 2019, and the lowest fell to 7.1962 on September 3 that year.

htmlOn September 27, the National Foreign Exchange Market Self-Discipline Mechanism Video Conference was held. The meeting analyzed the recent operation of the foreign exchange market and deployed relevant work to strengthen self-discipline management. People's Bank of China Deputy Governor and Chairman of China Foreign Exchange Market Steering Committee (CFXC) Liu Guoqiang attended and delivered a speech.

meeting pointed out that since the beginning of this year, the RMB exchange rate of RMB has remained basically stable at a reasonable equilibrium level. CFETS RMB exchange rate index is basically the same as at the end of 2021. The RMB exchange rate against the US dollar depreciated, but the depreciation was only half of the appreciation of the US dollar during the same period; the RMB appreciated significantly against the euro, pound and yen, and is one of the few strong currencies in the world at present.

meeting emphasized that the foreign exchange market is of great importance and maintaining stability is the first priority. The RMB exchange rate remains basically stable and has a solid foundation. Compared with many economies facing the risk of stagflation, my country's economy continues to recover and develop in general, the price level is basically stable, and the trade surplus is expected to remain high. As the macro-policy effect appears, the basic economic situation will be more solid. The current RMB exchange rate formation mechanism is suitable for China's national conditions and can give full play to the role of the market and government "two hands". It has withstood the test of multiple rounds of external shocks in history. People's Bank of China has accumulated rich response experience and can effectively manage market expectations. The current foreign exchange market is generally standardized and orderly, but there are also a few companies following the trend of "exchange speculation" and financial institutions operating illegally. We should strengthen guidance and correction. It must be recognized that the exchange rate point is inaccurate, and two-way fluctuation is the norm. Don’t bet on the unilateral appreciation or depreciation of the RMB exchange rate. If you bet for a long time, you will lose.

meeting requires that member units of the self-discipline mechanism should consciously maintain the basic stability of the foreign exchange market and resolutely curb the ups and downs of exchange rates. Quotation banks should effectively maintain the authority of RMB exchange rate intermediate price ; banks themselves should reasonably carry out self-operated transactions based on the principle of risk neutral to provide real liquidity to the market; member units should further strengthen publicity and guidance on risk neutrality of enterprises and financial institutions, and further improve the service level of helping enterprises avoid risks; relevant departments should strengthen supervision, management, monitoring and analysis, strengthen expectation management , and curb speculation.

What is the direction of the RMB exchange rate?

htmlOn September 5, the People's Bank of China announced that starting from September 15, the reserve ratio of foreign exchange deposit will be lowered by 2 percentage points, that is, the reserve ratio of foreign exchange deposits will be lowered from the current 8% to 6%. This is the second time that the People's Bank of China has lowered the foreign exchange reserve ratio this year. This move is believed to have sent a strong signal of "stabilizing the exchange rate".

Zhou Maohua, an analyst at the financial market department of Everbright Bank, told the Beijing News reporter that from the perspective of fundamentals, both the US dollar and the RMB deviate from fundamentals. Although the Fed aggressively raised interest rates, the real interest rate is still in the negative area.The indicators recently announced by the United States point toward a slowdown in the economy. At the same time, the European Central Bank and others have also joined the ranks of aggressive interest rate hikes and do not support the strengthening of the US dollar trend. In terms of the RMB, the domestic economy continues to recover, foreign trade remains resilient, cross-border capital flows in an orderly manner, and the international balance of payments remains basically balanced; RMB assets have advantages in valuation, and the RMB does not have a basis for trend depreciation. Judging from the fundamentals and the attractiveness of RMB assets, the RMB trend this year is relatively optimistic.

On September 15, The State Administration of Foreign Exchange released the data on bank foreign exchange settlement and sales and bank customer-related foreign payments in August this year. Wang Chunying, deputy director and spokesperson of the State Administration of Foreign Exchange, said that recently, non-US currencies have generally depreciated against the backdrop of the strengthening of the US dollar, the RMB exchange rate has performed relatively steadily, and the relevant indicators reflecting exchange rate expectations in the foreign exchange market are operating smoothly. In August, the exchange settlement rate (the ratio of foreign exchange sold by customers to banks to foreign exchange income) was 71%, an increase of 3 percentage points from the monthly average since this year, indicating that market entities maintain a rational trading model of "settled foreign exchange at high prices" and their willingness to settle foreign exchange has been enhanced; the exchange settlement rate (the ratio of foreign exchange purchases from banks to foreign exchange expenditures from customers) was 67%, which is basically the same as the monthly average since this year, and market entities' willingness to buy foreign exchange is generally stable.

For the next RMB exchange rate trend, Zhou Maohua proposed that the short-term strong US dollar still has certain pressure on the RMB, but it is expected that the RMB is expected to operate near the equilibrium level, and two-way fluctuations will become normalized. The domestic scattered epidemic is controllable, with policy support for ensuring supply and price stability, alleviating difficulties and helping enterprises and stabilizing growth. The domestic economy has recovered steadily, which is the world's greatest certainty. At the same time, my country's supply chain industry chain has resumed smooth operation, foreign trade structure has been optimized, foreign trade enterprises have improved quality and efficiency, foreign trade is resilient, the long-term allocation value of RMB assets has been highlighted, the balance of payments will remain basically balanced, and the RMB exchange rate elasticity has also been significantly enhanced. Wen Bin, chief economist of Minsheng Bank, also said that from the perspective of my country's economic fundamentals, it is expected that the growth rate of GDP in the third quarter will rebound significantly compared with the second quarter. The inflation level is moderate and controllable, and the balance of payments is good. In particular, basic balance of payments projects such as current accounts and direct investment maintain a high surplus, laying the foundation for the stable exchange rate of the RMB and the stable operation of the foreign exchange market. There is no foundation for the continuous depreciation of the RMB.

Edit Wang Jinyu