Title: Offshore Renminbi Weakens Against US Dollar, Experts Suggest Possible Policy Measures in the Future
Date: August 15, 2021
The exchange rate of the offshore Chinese yuan (renminbi) against the US dollar has dropped below 7.28, reaching a new low since June 30. Industry experts attribute this decline to recent weak economic data, the consolidation of the US dollar index at a high level, and the widening interest rate gap between China and the United States.
According to the official website of the China Foreign Exchange Trading Center, after the market opening on August 15, the spot exchange rate of the renminbi against the US dollar fell below 7.26, hitting an intraday low of 7.2626. This marks a drop of nearly 300 points from the previous trading day.
Furthermore, the onshore renminbi closed at 7.2537 against the US dollar at 16:30, down by 197 basis points compared to the previous trading day. The offshore renminbi also fell below 7.28 against the US dollar, experiencing a decline of approximately 200 basis points throughout the day.
Wang Zhiyi, the dean of the Cross-Border Financial Research Institute, explained that the recent weakening of the renminbi is influenced by China’s weak economic data, including foreign trade import and export data and credit social data. Additionally, the consolidation of the US dollar index at a high level and the widening interest rate gap between China and the United States have contributed to the renminbi’s decline.
Foreign exchange strategy expert Wang Yang mentioned that the renminbi’s weakening is also due to its poor fundamentals, such as lower-than-expected foreign trade data released recently. The negative growth in foreign trade for the first time in years has increased expectations for the central bank to maintain a loose monetary policy. Meanwhile, the US economy’s overall stability and a slight rebound in inflation have further widened the interest rate gap between the two countries.
China’s foreign trade data in July, which fell below expectations, along with the selling of A shares by Northbound funds and the strengthening US index, have all contributed to the renminbi’s decline.
Experts anticipate that the central bank could employ a combination of policies when the exchange rate approaches previous highs. Wang Zhiyi noted that it has been some time since the central bank lifted the macro coefficient of full-scale cross-border financing on July 20. In the future, when the exchange rate surpasses 7.3, the policy combination may be implemented.
The macro-prudential adjustment parameters for cross-border financing were raised from 1.25 to 1.5, which increased the upper limit of cross-border financing for enterprises and financial institutions. This move aimed to boost the liquidity of domestic US dollars and alleviate pressure on the renminbi’s depreciation. Following the policy implementation, the onshore renminbi appreciated significantly against the USD.
Experts emphasized that while short-term fluctuations may occur, the exchange rate’s medium and long-term trajectory will depend on factors such as China’s balance of payments, the interest rate differential between China and the United States, and economic fundamentals.
As the offshore renminbi continues to weaken against the US dollar, experts suggest monitoring negative factors affecting the renminbi and the US dollar index’s movement to gauge future trends.
Disclaimer: The content provided in this article is for informational purposes only and should not be considered as investment advice. Readers are advised to make their own decisions based on their judgments and at their own risk.
Source: Financial Associated Press