Why does the RMB exchange rate not fluctuate greatly
2023-05-24
Recently, both onshore and offshore RMB exchange rates have fallen below the "7" level against the US dollar. On the afternoon of May 18th, the China Foreign Exchange Market Guidance Committee (CFXC) held its first meeting in 2023, requiring member units of the self-regulation mechanism to consciously maintain the basic stability of the foreign exchange market and resolutely suppress the fluctuations of exchange rates. I believe that under the overall stability of China's macroeconomic market, international balance of payments market, and foreign exchange reserve market, the RMB exchange rate will not fluctuate greatly. Firstly, the market-oriented reform of the exchange rate is steadily advancing, and the RMB's ability to withstand pressure has significantly increased. The basic characteristic of the RMB exchange rate trend in recent years is the "two-way fluctuation and enhanced elasticity", which is also the overall characteristic of the stable and healthy development of China's foreign exchange market. We can observe the short, medium, and long-term changes in the exchange rate of the RMB against the US dollar. In the short term, as of May 23, the central parity rate of the RMB against the US dollar has dropped by 0.98% since the beginning of this year. The highest point on February 2nd was 6.7130, and the lowest point on May 19th was 7.0356. During this period, the maximum fluctuation of the central parity rate between the Chinese yuan and the US dollar was 4.81%. In the medium term, from April 2019 to April 2023, the average monthly decline of the RMB against the US dollar was 2.53%. If calculated based on the highest point formed in March 2022, which is 6.3457, and the lowest point formed in November 2022, which is 7.1628, the monthly average maximum fluctuation of the RMB/USD exchange rate is 12.88%. In the long run, the average annual decline in the exchange rate between the Chinese yuan and the US dollar from 2018 to 2022 was 1.64%. If calculated based on the highest point formed in 2021, which is 6.4515, and the lowest point formed in 2019, which is 6.8985, the annual average maximum fluctuation of the RMB/USD exchange rate is 6.93%. Through observation, we can view the rise and fall of the RMB against the US dollar exchange rate over the short, medium, and long periods as resilience, with very small fluctuations; Considering the amplitude of the highest and lowest points as elastic, the characteristic of "bidirectional fluctuation" is more obvious. It can be seen that with the steady progress of exchange rate marketization reform, the resilience of the RMB against the US dollar exchange rate is becoming increasingly prominent, and the characteristics of "two-way fluctuations and enhanced elasticity" are becoming increasingly evident. Secondly, the foreign exchange market operates smoothly, and the fluctuation of the RMB exchange rate is within the normal range. According to information released by the State Administration of Foreign Exchange (hereinafter referred to as the "State Administration of Foreign Exchange"), in April, the settlement rate increased by 8 percentage points compared to the monthly average in the first quarter of this year, and the sales rate increased by 3 percentage points compared to the monthly average in the first quarter of this year. Both of these data remain above 70%, indicating that the willingness of market entities to settle and sell foreign exchange has increased, and it is expected that the RMB exchange rate will remain stable. Under the current account, the cross-border surplus of goods trade in April was 29.3 billion US dollars, providing support for stabilizing the foreign exchange market. From the perspective of foreign capital allocation of A-shares, in April, multiple overseas institutions, including Schroder's three flagship funds, made significant purchases of new energy stocks. The foreign exchange bureau also disclosed that foreign investors have been net buyers of domestic securities for two consecutive months. Foreign investment actively allocates RMB assets, indicating its expected overall stability of the RMB exchange rate. Thirdly, China's foreign exchange market management measures are three-dimensional and diverse, and there are corresponding measures
Edit：Hou Wenzhe Responsible editor：WeiZe
Source：Securities Dairy
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