Original title: The two-way fluctuation of the RMB exchange rate is generally stable, resilient, and a more mature foreign exchange market is gradually becoming
Source: Securities Daily
Since October 29, the CFETS RMB exchange rate index has continued to rise. According to the latest data released by the China Foreign Exchange Trading Center, as of November 12, the CFETS RMB exchange rate index was 101.08, a record high since December 25, 2015. The cumulative increase this year has reached 6.58%.
In my opinion, there are three main reasons for the recent record high of the CFETS RMB exchange rate index. First of all, this is inseparable from my country’s continued export performance. In October, exports in U.S. dollars increased by 27.1% year-on-year to reach 300.2 billion U.S. dollars. This is the 13th consecutive month that my country’s exports have achieved double-digit growth, thus laying the foundation for the recent appreciation of the renminbi.
Second, in terms of U.S. dollars, my country’s trade surplus in October was 84.54 billion U.S. dollars, an increase of 47.5% year-on-year, setting a record high. The expansion of the trade surplus has also strengthened the market’s confidence in the strengthening of the renminbi, drove strong demand for foreign exchange settlement by export companies, and further promoted upward fluctuations in the renminbi exchange rate.
Finally, the time node factor cannot be ignored. The settlement is now approaching the end of the year, and some corporate customers repatriate overseas profits. The demand for foreign exchange settlement brought about by seasonal factors also provides support for the RMB exchange rate.
Since the beginning of this year, in the volatile environment of the international financial market, my country’s foreign exchange market has been operating steadily and the ability to resist risks has been significantly enhanced. The RMB exchange rate has fluctuated in both directions and is generally stable. The stability of the RMB’s currency value is stronger than that of most developed and emerging economies. At the same time, corporate exchange rate risk management awareness is gradually strengthening. In the first three quarters of this year, the scale of enterprises using foreign exchange derivatives such as forwards and options to manage exchange rate risk increased by 80% year-on-year, which was 56 percentage points higher than the growth rate of bank foreign exchange settlement and sales in the same period.
This demonstrates the effectiveness of the reform of the “August 11” exchange rate reform in 2015. Under the market-based adjustment mechanism, the RMB exchange rate can more fully, timely and accurately reflect changes in the international market and foreign exchange supply and demand; at the same time, it further confirms the deputy The director and spokesperson Wang Chunying stated at the beginning of this year-“A more resilient and mature foreign exchange market has gradually formed.”
Looking ahead, in the short term, there will be multiple factors that will affect the trend of the RMB exchange rate. One is the US dollar index. The market’s expectation of the Fed to raise interest rates in advance has increased, driving the US dollar index to continue to strengthen. On Wednesday (November 17) in Asia, the U.S. dollar index broke through 96 in intraday; the second is foreign trade. As the overseas epidemic eases, the effect of trade diversion on my country’s exports may weaken accordingly, and the future trade surplus will also be weakened. It may be narrowed accordingly; the third is monetary policy. At present, the global central bank’s interest rate hike is expected to increase or even land, which may put pressure on the upward renminbi exchange rate. Of course, in the medium and long term, the renminbi exchange rate is still determined by my country’s economic fundamentals and international balance of payments.
From the perspective of the sustained and stable recovery of my country’s economy this year, the ability of the RMB exchange rate to resist risks in fluctuations in the international financial market, and the steady deepening of my country’s exchange rate market reforms, we have the confidence to firmly believe that whether it is in the short-term or medium- and long-term , The RMB exchange rate will continue to remain basically stable at a reasonable and equilibrium level.
In the author’s opinion, the market should objectively treat the renminbi’s periodic appreciation or depreciation, and need not pay too much attention to the so-called numerical threshold. Companies should also take “exchange rate risk neutrality” as a long-term concept, based on their main business, and formulate a reasonable risk management strategy.