After the three major indexes of the RMB exchange rate all ended in appreciation on the last trading day of 2022, the trend in 2023 has attracted much attention: two-way fluctuations, moderate recovery, and gradual approach to a long-term reasonable range may become the key words of the RMB this year.
Looking back on 2022 to get out of “stability-depreciation-stability”
On the last trading day of 2022, the RMB exchange rate will undergo corrections to varying degrees. Among them, the central bank authorized the China Foreign Exchange Trading Center to announce that the central parity rate of the RMB exchange rate in the interbank foreign exchange market on December 30 was: 1 U.S. dollar to renminbi 6.9646 yuan.
A reporter from Beijing Business Daily found based on data from Chinamoney.com that in 2022, the central parity rate of the RMB against the US dollar has depreciated by 5,889 basis points, a depreciation rate of over 9.23%. The maximum depreciation of the middle price.
On December 30, the onshore RMB closed at 6.9514 against the US dollar, up 195 points from the previous trading day; the offshore RMB against the US dollar, which more reflects the expectations of international investors, closed at 6.9730, an increase of more than 500 basis points from the previous trading day. From the perspective of the annual trend, the onshore renminbi will fall by 8.32% against the US dollar in 2022, which is the largest annual decline since the exchange rate was merged in 1994. The offshore renminbi will fall by 8.75% against the US dollar in 2022, and the annual decline also hit a new high in recent years.
It is worth noting that despite the overall decline throughout the year, the strong trend of the RMB exchange rate at the end of the year still demonstrates the resilience of the RMB. Specifically, from mid-April to mid-May 2022, the RMB exchange rate ushered in the first wave of decline, the lowest fell below 6.8, and there was a phased low; from mid-August to the end of October entered the second wave of decline, and the RMB exchange rate continued to decline. It fell below the integer mark of 7.0 in September; it then fell further to 7.3 in October. Subsequently, since the end of November, the exchange rate of RMB against the US dollar has rebounded sharply, and recovered the 7.0 mark in early December, returning to the 6-digit.
Regarding the overall performance of the RMB exchange rate in 2022, Wen Bin, chief economist of China Minsheng Bank, concluded that the two-way volatility of the RMB exchange rate in 2022 will increase significantly. At the end of the year, it stabilized and rebounded, and the RMB exchange rate trend showed a pattern of “stable-depreciation-stable”. During the year, the U.S. dollar index rose by about 8.7%, slightly greater than the depreciation of the renminbi against the U.S. dollar, indicating that a strong U.S. dollar is an important factor for the depreciation of the renminbi.
Talking about the factors that affect the trend of the RMB, Ming Ming, the chief economist of CITIC Securities, told the reporter of Beijing Business Daily that there are two main factors affecting the trend of the RMB during the year: one is internal factors, including the impact of the epidemic disturbance in some areas on the fundamentals of the domestic economy, residents The second is external factors, including the strength of the US dollar during the Fed’s interest rate hike cycle and the weakness of the euro under the influence of the Russia-Ukraine conflict.
“In 2022, the renminbi will depreciate significantly against the U.S. dollar, but judging from my country’s foreign trade performance and balance of payments in 2022, the renminbi exchange rate is basically at a reasonable and balanced level, and the two-way fluctuations of the renminbi are normalized; and compared with other major currencies, the renminbi The exchange rate is one of the most stable currencies.” Zhou Maohua, a macro researcher at the Financial Market Department of China Everbright Bank, added.
Looking forward to 2023, the average value will return to below 7 with high probability
Bid farewell to 2022, when the renminbi fell across the board, and the renminbi has entered a brand new year of 2023. On the first trading day in 2023, the RMB foreign exchange market will usher in major changes.
On December 30, the central bank and the State Administration of Foreign Exchange issued Announcement No. 17 of 2022, pointing out that from January 3, 2023, the trading hours of the interbank RMB foreign exchange market will be extended to 3:00 the next day Beijing time, and the central parity rate of the RMB exchange rate The application period of market management systems such as floating range and market maker quotations will be extended accordingly. The time when China Foreign Exchange Trading Center announces the central parity rate of the RMB exchange rate at 9:15 Beijing time and the spot closing price of RMB against the US dollar at 16:30 Beijing time remains unchanged.
According to the central bank, in May 2022, the Executive Board of the International Monetary Fund completed the five-year review of the Special Drawing Right (SDR) valuation, and raised the weight of the RMB from 10.92% to 12.28%, further improving the internationalization of the RMB. . Extending the trading hours of the interbank foreign exchange market will help expand the depth and breadth of the domestic foreign exchange market, promote the coordinated development of the onshore and offshore foreign exchange markets, provide more convenience for global investors, and further enhance the attractiveness of RMB assets.
In addition, the China Foreign Exchange Trading Center also issued an announcement on the same day stating that starting from January 1, 2023, the weight of the currency basket of the CFETS RMB exchange rate index and the SDR currency basket RMB exchange rate index will be adjusted. Among them, in the CFETS RMB exchange rate index basket, the weights of major currencies such as the U.S. dollar, the euro, the Japanese yen, and the British pound were all lowered.
Under the double positive factors, the RMB exchange rate ushered in a pullback on the last trading day of 2022, which also gave the market more expectations for the trend of the RMB exchange rate in 2023. Regarding the subsequent trend of the RMB exchange rate, Mingming said that in the short term, as the Spring Festival approaches, the concentrated release of foreign exchange settlement demand may support the RMB to return to a volatile situation. Looking forward to 2023, with the easing of inflationary pressure in the United States and the gradual decline of the U.S. economy, the inflection point of the U.S. dollar index has appeared, and the external pressure on the RMB exchange rate may slow down.
“In the future, the dominant factors of the RMB exchange rate may return to the inside, including whether the future economic fundamentals can successfully reverse the ‘weak reality’ and whether the restoration of economic fundamentals can bring about the return of financial account capital.” Mingming said.
In Zhou Maohua’s view, the RMB exchange rate will face a more friendly environment in 2023. From the perspective of the internal and external environment facing the renminbi, the renminbi is expected to continue to operate near a reasonable and balanced level, mainly because as the country continues to optimize epidemic prevention measures, the epidemic’s impact on the economy has weakened, coupled with a package of policy support, the recovery trend of domestic demand is confirmed. At the same time, my country’s foreign trade is resilient, the attractiveness of RMB assets continues to increase, and the balance of payments is expected to maintain a basic balance; and the end of the Fed’s interest rate hike, the slowdown of the US economy, and Europe’s catch-up interest rate hikes will all restrict the sharp strengthening of the US dollar.
However, Zhou Maohua also reminded that under the background of geopolitical conflicts, global economic slowdown, and economic differentiation of various countries, there are still great uncertainties in the global economy and policy prospects. The global foreign exchange market is still volatile, and the two-way fluctuation of the RMB exchange rate is normal.
Wen Bin predicted that, considering the comprehensive economic fundamentals and the balance of payments, the overall RMB exchange rate in 2023 will show a trend of two-way fluctuations, a moderate rebound, and gradually approaching a long-term reasonable range. There is a high probability that the average value of the RMB exchange rate will return to the range below 7.
How to deal with volatility
The impact of fluctuations in the RMB exchange rate does not stop at the level of the trading market. For individual users, foreign trade companies, and financial institutions that need to exchange currency, the appreciation and depreciation of the RMB exchange rate is an unavoidable topic. How such groups can smoothly pass through the cycle of exchange rate fluctuations is also the focus of general attention in the market.
According to news from the central bank’s official website on December 30, 2022, the central bank’s Monetary Policy Committee pointed out at the fourth quarter meeting of 2022 that it is necessary to deepen the market-oriented reform of the exchange rate, enhance the flexibility of the RMB exchange rate, guide enterprises and financial institutions to adhere to the “risk-neutral” concept, and optimize expectation management. , keeping the RMB exchange rate basically stable at a reasonable and balanced level.
After entering 2023, how should individual users, foreign trade companies, and financial institutions respond to fluctuations in the RMB exchange rate? Wen Bin emphasized that exchange rate changes are highly uncertain, and various exogenous factors that are difficult to predict, such as the evolution of the conflict between Russia and Ukraine, the situation in the Middle East, and changes in Sino-US relations, often cause sudden changes in exchange rate expectations and trends. It is necessary to maintain awe of the market at all times, and not to choose sides and speculate on the exchange rate.
Wen Bin pointed out that foreign-related enterprises should establish the concept of “exchange rate risk neutrality”, and can choose appropriate foreign exchange products to carry out exchange rate risk hedging. Financial institutions need to further enrich foreign exchange products on behalf of customers and improve service quality; at the same time, they need to strengthen their own foreign exchange exposure management and prepare for exchange rate risk plans.
Zhou Maohua also said that the normalization of two-way fluctuations in the RMB has made it more difficult to predict the short-term trend of the exchange rate. For foreign trade companies, it is still necessary to deepen their main business, improve their foreign trade competitiveness, increase the added value of products and services, return to neutral exchange rates, and strengthen foreign exchange fluctuations. Risk management to avoid potential losses from foreign exchange speculation.
For individual users who need to use foreign exchange on a daily basis, Zhou Maohua mentioned that individual users can arrange foreign exchange settlement and sales in advance according to actual foreign exchange needs, operate within the upper and lower limits of their own acceptable range, and do not excessively pursue the highest appreciation point of the RMB and avoid pledging Pay attention to the unilateral market of RMB, and at the same time try to avoid chasing ups and downs, and speculation.
Mingming believes that no matter it is an individual, an enterprise or a financial institution, the concept of “risk neutral” exchange rate should be established. When faced with the uncertainty of exchange rate fluctuations, individuals should conduct foreign exchange settlement and sale operations based on their own needs; foreign trade companies can reasonably use forward foreign exchange settlement and sale, foreign exchange options, foreign exchange swaps and other foreign exchange derivatives in advance to reduce foreign exchange risks.
When choosing strategies such as hedging, formulate strategies based on multiple factors such as the company’s own orders and costs; financial institutions need to reasonably control the scale of foreign exchange assets, and can also make full use of related derivatives for risk management.
Beijing Business Daily reporter Liao Meng
(Editor: Wen Jing)