21st Century Business Herald reporter Chen Zhi reported from Shanghai In the past two trading days, the RMB exchange rate has quietly retreated.
As of 19:00 on March 14, the exchange rate of RMB against the U.S. dollar in the domestic onshore market hit 6.3637, with a cumulative decline of more than 425 basis points in the past two trading days. It hit the lowest point in the past month during the session. The exchange rate of the RMB against the U.S. dollar in the offshore offshore market It touched 6.3795, with a cumulative decline of more than 470 basis points in the past two trading days, and it once touched 6.3820, the lowest point since January 10.
In the view of many people in the financial industry, the fall in the RMB exchange rate is mainly affected by three factors:
First, the recent increase in the volatility of the global financial market has led to clearing houses and brokers requiring additional margins from investment institutions in Europe and the United States, forcing the latter to withdraw funds from emerging markets to fill the margin gap;
Second, under the influence of the 25 basis points of interest rate hike by the Federal Reserve this week, the yield of 10-year U.S. Treasury bonds hit 2.08%, the highest since 2019, which narrowed the interest rate gap between China and the United States to a low of 72 basis points this year, and balanced the RMB. a fall in exchange rate valuations;
The third is the recent poor performance of safe-haven currencies. For example, the USD/JPY hit 118, the highest since January 2017, and the USD/CHF also hit 0.9363, the highest since last November, dragging down the entire safe-haven currency exchange rate.
A foreign exchange trader of a Hong Kong bank revealed to reporters that although the domestic and foreign exchange rates of the renminbi fell by more than 400 basis points in the past two trading days, many overseas investment institutions did not bet on a sharp unilateral decline in the renminbi. The reason is that they believe that the previous performance of the RMB exchange rate was too “strong”, and the fall has released the unilateral upward pressure on the exchange rate to a certain extent, which will help the RMB exchange rate continue to fluctuate in both directions.
A Wall Street emerging market fund manager bluntly said that the decline in the RMB exchange rate in the past two trading days is somehow related to the continued divergence of monetary policies between China and the United States. In the case of the Fed raising interest rates this week, the expectation of the Chinese central bank to cut interest rates to boost the economy has been quietly heating up in the foreign exchange market recently, which has invisibly intensified the expectations of monetary policy differences between China and the United States. Exchange rate profit.
“However, this has also brought down the expectation of continued appreciation of the renminbi, which will help the foreign exchange market run smoothly.” He believes.
The reporter learned from a number of bankers that despite the fall in the RMB exchange rate, the cross-border flow of capital in the foreign exchange market remains balanced.
“In fact, on the one hand, the foreign exchange market is gradually digesting the impact of the Federal Reserve’s interest rate hike cycle this week on the fluctuation of the RMB exchange rate. There is no need to worry too much.” A foreign exchange trader of a large state-owned bank told reporters bluntly. Many overseas investment institutions still believe that the equilibrium exchange rate of the RMB is between 6.3 and 6.4, so they prefer to make profits by betting on the volatility of the RMB exchange rate.
The “new pusher” of the falling RMB exchange rate
In the view of the above-mentioned foreign exchange traders of Hong Kong banks, the fall in the domestic and overseas RMB exchange rates in the past two trading days has a high correlation with the increased volatility of A shares and Hong Kong stocks.
Communication data Datayes shows that in the past two trading days, the net outflow of northbound funds reached about 20 billion yuan, accounting for about 50% of the 42.457 billion yuan net outflow of northbound funds in the past week.
“Behind this, the increased volatility in the European financial market has caused clearing houses and brokers to require additional margins from global investment institutions, forcing them to withdraw funds from emerging markets to fill the margin gap.” He analyzed.
The above-mentioned emerging market fund managers pointed out to reporters that since last week, European and American clearing houses and brokers have begun to require many hedge funds to add margin for leveraged investment portfolios. Even large hedge funds with stable performance and stable styles are required to add 10%-15% margin. On the contrary, small and medium-sized hedge funds with relatively volatile performance may have a margin increase ratio of more than 30%.
The reason is that the short-squeezed surge in LME nickel futures last week triggered the London Metal Exchange to suspend trading and other measures, which made the clearing house and brokers feel that the black swan events in the financial market began to increase, and then required investment institutions to add margin to Improve risk resistance.
“This has led us to sell off some of our assets from emerging markets since last Thursday, withdrawing millions of dollars for margin calls,” he noted. Although the hedge fund’s move has caused the RMB exchange rate to fall, most overseas investment institutions do not believe that the RMB’s upward momentum has been “reversed”.
“This is more of a short-term phenomenon. As hedge funds quickly sell off emerging market highly liquid assets (including A-shares, etc.) to complete margin calls, they will readjust their global asset allocation strategies, and China’s economic growth will have solid fundamentals. The low valuation of A-shares will attract global capital inflows and drive the RMB exchange rate to bottom out.” The emerging market fund manager said bluntly.
The aforementioned Hong Kong bank foreign exchange trader pointed out that the decline in the RMB exchange rate in the past two trading days was mainly due to the impact of the offshore RMB exchange rate, because its decline exceeded that of the domestic RMB exchange rate, indicating that the temporary “exit” of foreign capital was the main reason for the exchange rate correction.
“At present, the exchange rate of RMB against the U.S. dollar in the domestic onshore market is higher than that of the offshore market, indicating that China’s high foreign trade boom still provides strong support for the RMB.” He pointed out. When the domestic RMB exchange rate against the U.S. dollar once fell below 6.36 on Monday, many foreign trade companies began to settle foreign exchange to buy RMB, indicating that the long-short game of the RMB exchange rate market is gradually becoming “equilibrium”.
Two-way volatility helps reduce exchange rate hedging costs
It is worth noting that although the RMB exchange rate in the past two trading days has retreated all the gains in the past month, this does not affect the general trend of global capital steadily increasing the RMB exchange rate.
“In fact, most global asset management institutions do not increase their positions in RMB bond stocks for the sake of RMB exchange rate appreciation gains.” A chief representative of the Asia-Pacific region of a large European asset management institution pointed out. They pay more attention to the high safety and stable returns of RMB assets.
A director of the asset allocation department of a large Wall Street asset management institution revealed to reporters that after experiencing the pressure of capital return caused by the escalation of geopolitical risks at the end of February, some global asset management institutions began to re-position Chinese government bonds since March. The renminbi exchange rate has fallen back on the second trading day, and their pace of adding positions is almost “similar” to the past, with no obvious signs of slowing down.
In his view, it is not ruled out that some global asset management institutions may increase exchange rate risk hedging operations due to the correction of the RMB exchange rate, including buying derivatives such as forward RMB swap transactions to lock the exchange rate of RMB exchange rate, but this operation does not affect them. The comprehensive income of the RMB bond portfolio constituted a significant impact.
The chief representative of the Asia-Pacific region of the above-mentioned large European asset management institutions pointed out to reporters that compared with the unilateral appreciation of the RMB exchange rate, they prefer to continue to increase their holdings of RMB bonds in an environment of two-way fluctuations in the RMB, because they can bet on the increase in the flexibility of the RMB exchange rate. Steady foreign exchange investment returns reduce the actual operating cost of hedging RMB exchange rate risks.
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