The RMB exchange rate will remain within a reasonable range
2024-06-14
Recently, the US dollar index has hit a new high, putting new downward pressure on non US currency exchange rates. Data shows that the onshore Chinese yuan once fell below the 7.25 mark against the US dollar, reaching a new low since November last year; The offshore Chinese yuan fell below the 7.27 mark against the US dollar, reaching a new low in nearly two weeks. Experts say that the recent decline in the RMB exchange rate is mainly influenced by short-term fluctuations in market risk aversion. In the medium to long term, as the fundamentals of the Chinese economy continue to improve, coupled with the fact that the Federal Reserve will sooner or later trigger interest rate cuts, there is a high probability that the RMB exchange rate will hit bottom and rebound. The recent temporary pressure on the exchange rate of the Chinese yuan against the US dollar is due to the passive depreciation of the US dollar index, driven by factors such as monetary policy differentiation in major economies and rising global risk aversion sentiment. The market began to expect the United States to maintain high interest rates for a longer period of time, and the start of the Eurozone's interest rate reduction cycle widened the interest rate spread between the United States and Europe; Under the influence of geopolitical dynamics, risk aversion has once again risen, prompting investors to increase their positions in US dollar assets and pushing up the US dollar index Pang Ming, Chief Economist and Director of Research at Jones Lang LaSalle in Greater China, said that these factors have led to a strong upward trend in the US dollar index, which in turn has brought short-term, temporary, phased, and fluctuating pressure on the renminbi against the US dollar exchange rate. If we observe and track the changes in the exchange rate of the Chinese yuan against a basket of currencies in the China Foreign Exchange Trading Center's RMB exchange rate index, we can find that its adjustment range is much lower than the changes in the exchange rate of the Chinese yuan against the US dollar. Since the beginning of this year, the RMB exchange rate has shown a trend of depreciation against the US dollar and appreciation against a basket of currencies. Data shows that as of the end of April, the China Foreign Exchange Trading Center (CFETS) RMB exchange rate index was at 100.43, an increase of 3.1% from the end of the previous year. "The policy of stabilizing expectations has played an important role in maintaining the relative stability of the RMB exchange rate. The RMB was able to maintain a certain degree of bilateral exchange rate elasticity against the US dollar in the first half of this year, while also maintaining a relatively strong exchange rate stability against a basket of currencies." Li Liuyang, Chief Analyst of Foreign Exchange Research at CICC Research Department, said. Looking ahead to the second half of the year, Li Liuyang believes that the RMB exchange rate will still maintain low volatility under the influence of stable exchange rate policies. Before the resumption of interest rate cuts by the Federal Reserve, the renminbi exchange rate may maintain a trend of "bilateral depreciation against the US dollar and appreciation against a basket of currencies". After the resumption of interest rate cuts, the pressure on the bilateral exchange rate of the RMB against the US dollar may be reduced. In the Asia Pacific market, the exchange rates of many countries such as the Japanese yen have fallen below historical averages, but the RMB exchange rate has remained relatively stable within the range of 7.1 to 7.25. To some extent, the renminbi has played the role of a 'ballast stone' for Asian currencies Wu Dan, a researcher at the Bank of China Research Institute, said that this is mainly due to the reasonable and orderly cross-border capital flows in China since the beginning of this year. The recovery of trade data has led to an increase in capital inflows under the current account, and foreign investment has continued to increase its holdings of RMB bonds, driving short-term capital outflows under the capital financial account. In addition, the stable and abundant scale of China's foreign exchange reserves and the basic balance of international payments provide strong support for the stability of the RMB exchange rate. Pang Ming's analysis shows that from the perspective of economic fundamentals, China's economic operation continues to show an upward trend, with continuous improvement in macro indicators and micro subject perception. The strength of macro regulation, policy effectiveness, and development quality have steadily improved, and the positive factors for medium - and long-term development have been further strengthened. The People's Bank of China and Chinese assets will continue to provide sustained, stable, safe, and long-term investment opportunities. From the perspective of investors, whether from the perspectives of diversified allocation, long-term operations, or exchange gains and losses, the overall trend of paying attention to and increasing the allocation of non US dollar assets will not change. Renminbi assets with low correlation with the global market, strong hedging attributes, good yield stability, high long-term investment value, and strong liquidity are still attractive. From a policy perspective, the expectations and transactions in the foreign exchange market remain rational, and cross-border capital flows are orderly and balanced. Relevant departments will continue to strengthen effective management and reasonable guidance of market expectations. The tool options retained in the future policy toolbox will still be relatively sufficient. It can be said that China has the foundation, strength, confidence, ability, and methods to maintain the basic stability of the RMB exchange rate. "The decisive role of the market in the RMB exchange rate will be upheld, the elasticity of the exchange rate will be enhanced, the risk of exchange rate overshoot will be effectively prevented, the power and mechanism for exchange rate correction will be sound, the RMB exchange rate will steadily rebound, moderately strengthen, and continue to maintain basic stability at a reasonable equilibrium level." Pang Ming said. (Lai Xin She)
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