Every reporter Li Yuwen Every editor Ma Ziqing
Recently, the continuous depreciation of the RMB against the US dollar has aroused widespread concern in the market. On June 28, the exchange rate of the onshore renminbi against the U.S. dollar fell below 7.25 intraday, and the offshore renminbi once fell to 7.2692, both hitting new lows since November 2022. In intraday trading on June 29, the onshore renminbi once again fell below the 7.25 mark, while the offshore renminbi also fell below the 7.26 mark again.
In intraday trading on June 29, the onshore renminbi fell below the 7.25 mark again
Image source: Flush iFinD
Looking back on 2022, the RMB exchange rate against the US dollar has experienced two waves of relatively large depreciation, one was a rapid adjustment from 6.37 in mid-April last year to 6.81 in mid-May, and the other was from 6.75 after the MLF cut interest rates on August 15 last year. It continued to adjust until it hit a low of 7.32 in November. Compared with the two waves of devaluation last year, what are the differences in this round of RMB depreciation?
In addition, in the face of the fall in the RMB exchange rate, there is speculation in the market that the central bank may re-introduce “counter-cyclical factors” to stabilize the exchange rate. Experts interviewed pointed out that in order to prevent the “herd effect” in the foreign exchange market, it is not ruled out that the regulators will reintroduce “counter-cyclical factors” or even use other foreign exchange market regulation tools. This is not to hold on to a specific point, but to control the speed of depreciation and avoid one-sided and extreme market sentiment.
In intraday trading on June 29, the exchange rate of RMB against the US dollar broke through 7.25 again
Since May, the exchange rate of the RMB against the US dollar has continued to fall. After breaking through the 7.00 and 7.10 barriers in succession, it quickly fell below the 7.20 and 7.25 barriers in recent days.
On June 26, the RMB against the U.S. dollar both fell in the offshore market, falling below 7.20 at the opening, and then continued to drop, closing at 7.2219 onshore and 7.2454 offshore. On the next day, the onshore and offshore renminbi exchange rates rebounded, recovering the 7.22 and 7.21 mark one after another, and finally closed at 7.2101 onshore and 7.2239 offshore.
Recent onshore RMB quotation trend
Image source: Flush iFinD
However, this rebound did not continue. On June 28, both the onshore and offshore markets fell sharply. The exchange rate of the onshore renminbi against the US dollar fell below 7.25 during the session, and the offshore renminbi once approached 7.27, both hitting new lows since November 2022. The intraday depreciation rate was nearly 400 basis points . On the same day, the exchange rate of the onshore RMB against the US dollar closed at 7.2455, and the offshore closed at 7.2431.
In intraday trading on June 29, the onshore renminbi once again fell below the 7.25 mark, while the offshore renminbi also fell below the 7.26 mark again.
On June 29th, the offshore renminbi once again fell below the 7.26 mark
Image source: Flush iFinD
Zhou Maohua, a macro researcher of the Financial Market Department of Everbright Bank, told the reporter of “Daily Economic News” that the recent depreciation of the RMB exchange rate can be attributed to several factors:One isThe pace of economic recovery is not ideal, and the market expects loose policy;two isThe Fed’s hawkish rhetoric raised expectations for a stronger dollar;three isIncreased market volatility has a certain impact on the RMB exchange rate;Four isThe seasonality of dividends and foreign exchange purchases disrupts short-term supply and demand in the market.
In the short term, the U.S. dollar index will strengthen, creating passive depreciation pressure on the RMB exchange rate
Previously, the central bank pointed out in the report on China’s monetary policy implementation in the first quarter of 2023 thatThe current external environment is becoming more complex and severe, the internal driving force of the domestic economy is not strong, and the demand is still insufficient.
The reporter noticed that from April to May, the national consumer price index (CPI) and industrial producer price index (PPI) both fell month-on-month, the manufacturing purchasing managers index (PMI) was below the critical point, and the non-manufacturing business activity index decline.
According to customs statistics, in May this year, my country’s import and export reached 3.45 trillion yuan, an increase of 0.5%. Among them, exports were 1.95 trillion yuan, a decrease of 0.8%; imports were 1.5 trillion yuan, an increase of 2.3%; the trade surplus was 452.33 billion yuan, a decrease of 9.7%.
In this context, the market’s expectations for policy easing have increased. Just in mid-June, the operating rates of the 7-day reverse repo, standing lending facility (SLF), and medium-term lending facility (MLF) were cut by 10 basis points. Subsequently, the LPR quotation was released in June, and the 1-year and 5-year-old LPRs were all lowered by 10 basis points.
In June, the 1-year and 5-year-plus LPRs were all cut by 10 basis points
Image source: Central Bank website
“After the policy interest rate cut in June, other policies to stabilize growth have not yet been fully introduced. Especially after the quotation of LPR with a period of more than 5 years has been lowered, the market still lacks clear expectations on when other measures to stabilize the property market will be launched. The resulting policies to stabilize growth The difference in expectations is a major factor leading to the rapid depreciation of the renminbi in the near future.” Wang Qing, chief macro analyst at Oriental Jincheng, told the reporter of “Daily Economic News” that after the sharp rebound on June 16, the recent transactions The Japanese yuan weakened again, mainly because the current market depreciation expectations have not yet been fundamentally reversed.
With regard to the implementation of policy interest rate cuts in June and the resulting divergence of monetary policies between China and the United States,Wang Qing said, “It can be seen that the inversion of the interest rate gap between China and the United States has not deepened significantly after the interest rate cut; and looking back at the RMB exchange rate trend last year, it can also be seen that the central bank’s interest rate cut has little impact.”
On June 28, the US dollar index was close to 103 points
Image source: Flush iFinD
In addition, on June 28 local time, Federal Reserve Chairman Powell said at the European Central Bank seminar in Sintra, Portugal that most policymakers expect to raise interest rates twice this year and do not rule out the possibility of consecutive interest rate hikes. The hawkish speech made the market expect the Fed to raise interest rates, coupled with the US government’s debt ceiling crisis, the US dollar index strengthened in the short term, forming passive depreciation pressure on the RMB exchange rate.
What is the difference from last year’s two rounds of depreciation?
Looking back on 2022, the RMB exchange rate against the US dollar has experienced two waves of relatively large depreciation, one was a rapid adjustment from 6.37 in mid-April last year to 6.81 in mid-May, and the other was after the MLF cut interest rates on August 15 last year. 6.75 continued to adjust until it hit a low of 7.32 in November. After that, it began to rebound and closed at 6.9514 on December 30 of that year.
From mid-April to mid-May last year, the onshore RMB quotation quickly adjusted from 6.37 to 6.81
Image source: Flush iFinD
Since the beginning of this year, both the onshore and offshore renminbi have depreciated against the US dollar by more than 4%. Compared with the two waves of depreciation last year, what are the differences in this round of RMB exchange rate depreciation?
Wang Qing told reporters that from the perspective of driving factors, there is not much difference between this round of RMB depreciation and the two rounds of devaluation in 2022, both of which are mainly driven by the expected weakening of economic fundamentals. The difference is that the evolution of the epidemic and prevention and control policies in 2022 determines the economic fundamentals and the direction of the RMB exchange rate; since April this year, the domestic economic recovery has been weak due to the slowdown in external demand and the weakening of the property market again. It has become the main reason for the current round of RMB depreciation.
After the MLF cut interest rates on August 15 last year, the onshore RMB quotation continued to adjust from 6.75 to the November low
Image source: Flush iFinD
In addition, in terms of duration and depreciation rate, compared with the two rounds of depreciation in 2022, this round of depreciation process is relatively smooth; The overall operation of the foreign exchange market is also relatively stable. This may be one of the reasons why regulators have not yet used foreign exchange market regulation tools so far.
The reporter noticed that due to the recent large fluctuations in the RMB exchange rate, there is speculation in the market that the central bank may reintroduce “counter-cyclical factors” to stabilize the exchange rate.
Since the beginning of this year, the onshore RMB has depreciated by more than 4% against the US dollar.
Image source: Flush iFinD
Wang Qing said that considering that the recent depreciation of the RMB has accelerated,In order to prevent the “herd effect” in the foreign exchange market, it is not ruled out that the regulators will reintroduce the “countercyclical factor”and even the possibility of using other currency market control tools。“It should be pointed out that this is not to hold on to a specific point, but to control the speed of depreciation and avoid one-sided and extreme market sentiment.”
Zhou Maohua believes that the recent fluctuations in the RMB exchange rate have been relatively large, but the overall value has not deviated from the reasonable range. There has been no panic or irrational behavior in the market, and the flexibility of the RMB exchange rate has increased significantly. The country firmly promotes the market-oriented reform of the RMB exchange rate. Before the market deviates from the fundamentals, is irrational, pro-cyclical, or maliciously shorts, the central bank will take more guidance on expectations.
How will the RMB exchange rate trend in the second half of the year?
Many interviewees said that the future trend of the RMB exchange rate will depend on the impact of economic fundamentals.
Zhou Maohua told reporters,From the perspective of the internal environment,We are still optimistic about the performance of the RMB exchange rate. It is expected that the RMB exchange rate will continue to fluctuate in a two-way manner near a reasonable and balanced level in the second half of the year, mainly due to the recovery of domestic economic activities, the steady recovery of the service industry, the precise and powerful macro policies, and the steady economic recovery.From the external environment,The end of the Fed’s interest rate hike and the slowdown of overseas economies are positive for the RMB trend. In addition, from the perspective of real interest rates, my country’s interest rates are still higher than those in Europe and the United States.
Wang Qing believes that the current RMB exchange rate is in a stage of depreciation pressure, but it is unlikely to directly break through the low point in November last year in the short term. There are two main reasons for this:One isIn the stage of rapid depreciation, in order to prevent the “herd effect” in the foreign exchange market, regulators may use various foreign exchange market control tools to curb the momentum of excessive depreciation;two isAfter the interest rate cut in June, a number of policies and measures to stabilize growth will be introduced one after another, and the depreciation trend of the RMB caused by poor policy expectations is expected to ease.
“We judge that the exchange rate of RMB against the US dollar may fluctuate above the low point in November last year for a period of time, that is to say,It is less likely to directly break through the 7.32 point.“Wang Qing said that regarding the future trend of the RMB exchange rate, we can focus on the launch time of a number of policy measures to stabilize growth mentioned in the executive meeting of the State Council on June 16, and when the macroeconomic recovery momentum will strengthen in the third quarter.
In addition, Wang Qing believes that “under the prospect that the domestic price level is expected to remain moderate in the second half of the year, the pure weakening of the renminbi will not substantially affect the direction of domestic monetary policy. As the world‘s second largest economy, my country’s monetary policy will Independence is given top priority.If it is necessary to further increase counter-cyclical regulation in the second half of the year, there is room for interest rate cuts and RRR cuts.”
At the same time, moderately increasing the flexibility of the RMB exchange rate and releasing the pressure of depreciation can also better play its role as an automatic macroeconomic stabilizer. more importantly,The moderately loose monetary policy in the second half of the year will effectively boost the momentum of economic recovery, which is the most effective support for the RMB exchange rate.
Cover image source: Visual China-VCG211276657648