On May 6, the exchange rate of the offshore RMB against the U.S. dollar fell below the important 6.70 mark during intraday trading. (Image source: Adobe Stock)
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[See China May 7, 2022 News](See Chinese Reporter Wenlong Comprehensive Report) On May 6, the exchange rate of the offshore RMB against the U.S. dollar fell below the important 6.70 mark during intraday trading, and the onshore RMB against the U.S. dollar exchange rate depreciated within the same day. Over 500 points. The Fed raised interest rates and tightened monetary policy, superimposed on China’s economic downturn and loose monetary policy, the RMB depreciation trend has been formed.
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Since April 19, the renminbi has depreciated rapidly, and the exchange rate has fallen below multiple levels in a row, falling by more than 3,000 basis points in half a month. On May 6, the exchange rate of the offshore RMB against the US dollar once fell below the important 6.70 mark.
On May 6, China’s official media “Securities Times” reported that UBS Asia Economic Research Director and Chief China Economist Wang Tao said, “It is expected that the RMB will weaken further against the US dollar in the next few months, reaching 6.9 by the end of the year. The US dollar has maintained a strong momentum recently, and China’s exports and economy have weakened. The yuan against the US dollar may break through the 7 mark in the middle of the year, but it should return to within 7 by the end of the year.”
Wang Tao said the central bank will seek a balance between the exchange rate and other policy objectives. Although the weakening of the renminbi is basically in the same direction as the changes in economic fundamentals, it is believed that the central bank will avoid the market’s expectation of a continuous unilateral trend of the renminbi, because this will lead to violent fluctuations in the financial market.
Dong Ximiao, chief researcher of China Merchants Union Finance and a part-time researcher of the Financial Research Institute of Fudan University, said that the manufacturing Purchasing Managers Index (PMI) has been below the line of prosperity and decline for two consecutive months, showing that the current contraction of the real economy has further accelerated.
Guan Tao, global chief economist at Bank of China Securities, said that the impact of the economic shutdown brought about by the epidemic on the market is mainly the impact of cash flow, and the society’s willingness to consume and invest tends to weaken. However, a large number of financial policies now mainly support companies to increase leverage, but because market players have no cash flow due to the impact of epidemic prevention and control, their willingness to increase leverage is not high.
Zhou Hongli, senior economist at the Economic Research Department of DBS Bank (Hong Kong), said that the biggest factor affecting China’s economic prospects is the epidemic and epidemic prevention measures such as city closures and lockdowns. For example, Shanghai ranks second in terms of GDP in China. Although the closure of the city allows companies to conduct closed-loop production, production will still be affected by transportation restrictions and staff isolation, and it will take several weeks to recover after the blockade is lifted. Coupled with the impact of the epidemic on the supply chain and continued high shipping prices, it is expected that China will maintain a positive monetary policy this year, but the room for easing will be narrowed.
Due to the “zero-clearing” epidemic prevention policy of the Beijing authorities, the economy has been impacted, and the supply chain disruption has also caused foreign businessmen to transfer orders, China’s foreign trade exports have declined, and the RMB exchange rate has also fallen sharply. Chinese Premier Li Keqiang chaired an executive meeting of the State Council on May 5, expressing the need to stabilize foreign trade and the RMB exchange rate.
According to a report by Radio Free Asia on May 5, Qiu Dasheng, a researcher at the Taiwan Economic Research Institute, believes that “in addition to the impact on consumption, the production of components is at risk of shutdown, and foreign capital is withdrawn with the transfer of production capacity. Another point, in response to the tightening of the Federal Reserve. Policies allow capital to flow back, and these two factors have left China’s renminbi exchange rate unsupported.”
The Federal Reserve announced on May 4 that it would raise the federal benchmark interest rate by 0.5 percentage points and begin to shrink its balance sheet from June. The advent of a strong dollar era, coupled with China’s economic downturn, has put pressure on the RMB exchange rate.
Responsible editor: Xin He Source: look at China
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