Home » The RMB exchange rate fluctuates more and the toolbox reserves are sufficient | the RMB exchange rate fluctuates more-Related News – Xinhua English.news.cn

The RMB exchange rate fluctuates more and the toolbox reserves are sufficient | the RMB exchange rate fluctuates more-Related News – Xinhua English.news.cn

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[摘要]In May, the RMB continued to fluctuate against the US dollar. Industry insiders believe that factors such as the Fed’s accelerated tightening of monetary policy have pushed the U.S. dollar index to new highs, and the short-term internal and external pressure on the RMB exchange rate has increased, and the momentum of high-level correction may not end.

(Original title: The fluctuation of the RMB exchange rate has increased, and the toolbox reserves are sufficient to stabilize the market)

In May, the RMB continued to fluctuate against the US dollar. Industry insiders believe that factors such as the Fed’s accelerated tightening of monetary policy have pushed the U.S. dollar index to new highs, and the short-term internal and external pressure on the RMB exchange rate has increased, and the momentum of high-level correction may not end. However, the fundamentals of China’s long-term economic growth have not changed. In dealing with the short-term sharp fluctuations in the exchange rate, the relevant departments have accumulated sufficient experience and have a wealth of tools, and the operation of the RMB exchange rate will not significantly deviate from the reasonable operating range.

High pullback momentum continues

Recently, the RMB exchange rate continued to show a downward trend of fluctuations. On May 5 and 6, it adjusted rapidly in a row. The onshore RMB exchange rate against the U.S. dollar once approached 6.7 yuan, hitting a new low since December 2020. The offshore RMB exchange rate against the U.S. dollar was intraday. fell below 6.73 yuan.

The impact of external risk factors on the short-term operation of the RMB exchange rate is further manifested. Market participants noticed that while the RMB exchange rate was quickly reversing, the US dollar index, which had undergone a brief correction in the international market, rose again and rose above 104 on May 6, hitting a new high since the end of 2002.

An important background for the strong rise in the US dollar index is the accelerated adjustment of monetary policy by the Federal Reserve. Recently, the Fed continued to raise interest rates by 50 basis points and decided to shrink its balance sheet from June 1. Although the Fed did not choose a more aggressive one-time rate hike, the orientation to accelerate tightening is clear, especially the “boots” of shrinking balance sheets will land, causing market participants to worry about the U.S. economy, and the market risk appetite has declined, stimulating the dollar index and the United States. Bond yields rose. On May 6, while the U.S. dollar index rose above 104 during the session, the yield on the 10-year U.S. Treasury bond once rose to around 3.15%, hitting a new high since the end of 2018.

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There is still a certain inherent revaluation demand for the RMB exchange rate. Institutional analysis said that the current downward pressure on my country’s economy has increased, macro policies have exerted efforts to stabilize growth, and the gap between Chinese and foreign economic operations and policy orientations has widened, making the RMB exchange rate facing a certain high adjustment pressure.

Rational and orderly transactions in the foreign exchange market

In view of the fact that internal and external risk factors have not been eliminated, many institutions predict that the trend of the RMB exchange rate correction will continue, but there is little risk of disorderly devaluation and loss of control.

The Societe Generale Research Report pointed out that in the context of the Federal Reserve’s accelerated monetary tightening, it is expected that factors such as pressure on risk assets and cross-border capital flows will still exert a certain downward pressure on the RMB exchange rate. Wang Youxin, a senior researcher at the Bank of China Research Institute, said that with the narrowing of interest rate spreads between China and foreign countries, the volatility of short-term cross-border capital flows has increased, superimposed on changes in market sentiment, and the pressure of short-term RMB exchange rate correction has increased.

However, Zhong Zhengsheng, chief economist of Ping An Securities, believes that the impact of the Fed’s monetary policy adjustment on the stock market and foreign exchange market is concentrated in the early stage of policy adjustment. With the gradual implementation of the policy, the market may gradually return to stability.

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Regarding the upside of the US dollar index, some institutions such as Industrial Research believe that the current foreign exchange market’s expectations for the Fed’s tightening are close to “full”, and the US dollar index may rise rapidly after the rise may weaken. Before the Fed’s June meeting on interest rates, the US dollar index may turn volatile or start a slight correction.

Zhong Zhengsheng said that my country’s real interest rates are still significantly higher than some developed economies. Although short-term fluctuations have increased, cross-border funds will continue to flow into my country in the future and increase the allocation of RMB assets.

It is worth noting that despite the recent increase in exchange rate fluctuations, transactions in the foreign exchange market are rational and orderly, and exchange rate expectations are basically stable. Judging from the current indicators related to derivatives such as RMB against foreign exchange forwards and options, there is no obvious depreciation expectation implied. Most institutions believe that the probability of a sharp depreciation of the RMB exchange rate is low.

Keep the RMB exchange rate basically stable

The exchange rate of RMB is mainly determined by market supply and demand. According to industry analysts, both the appreciation of the RMB exchange rate in the first quarter and the depreciation of the exchange rate since the second quarter were driven by market forces. It is expected that this situation will not change significantly in the next stage, but if the exchange rate fluctuates too much, the relevant departments will take further necessary measures to keep the RMB exchange rate basically stable at a reasonable and balanced level.

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“In recent years, the resilience of my country’s foreign exchange market has continued to increase, and it has the basis and conditions to adapt to the current round of policy adjustments by the Federal Reserve.” Wang Chunying, deputy director of the State Administration of Foreign Exchange, said recently that the flexibility of the RMB exchange rate has continued to increase, releasing external pressure in a timely and effective manner. The rational trading behavior of enterprises of “settling foreign exchange at highs and buying foreign exchange at lows” can effectively suppress some exchange rate adjustments, and contribute to the overall stability of the RMB exchange rate and the smooth operation of the foreign exchange market.

Li Zhan, chief economist of the research department of China Merchants Fund, predicts that the current round of RMB exchange rate depreciation and depreciation expectations will be relatively moderate. Even if exchange rate fluctuations increase, the management department will have sufficient means to respond.

Looking forward to the next stage, the agency expects that the People’s Bank of China will maintain the flexibility of the RMB exchange rate, continue to play the role of price leverage to adjust market supply and demand, and promote the self-balancing of the foreign exchange market. At the same time, in response to possible pro-cyclical fluctuations in the foreign exchange market, we will continue to use our existing experience and sufficient policy tools, and take further effective measures to conduct counter-cyclical adjustments when necessary.

Xie Yunliang, chief macro analyst at Cinda Securities, introduced that historically, in response to the rapid and excessive depreciation of the RMB exchange rate, the relevant departments have taken measures including introducing a counter-cyclical factor in the middle parity, adjusting the risk reserve ratio for forward foreign exchange sales, and adjusting offshore RMB liquidity, etc.

Editor: Qi Shaoheng

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