Despite the continuous climb of the US dollar index, the RMB exchange rate has been very strong.
On March 3, the renminbi traded at a midpoint of 6.3016 against the dollar, up 335 basis points, the biggest gain since July 30, 2021.
Why is there a significant appreciation of the renminbi at this time?
First, it means that the hedging attributes of RMB assets are increasing. After the crisis, it was normal for safe-haven funds to flow everywhere, and in the past, the US dollar, US treasuries and the yen were the main safe-haven assets. However, judging from the impact of the recent Conflict between Russia and Ukraine, the renminbi is slowly becoming a safe-haven asset.
To become a safe-haven asset, the primary feature must be that the value of the currency is stable, not rising or falling. Looking back at the trend in recent years, we can find that even if there has been a Sino-US game and the new crown epidemic, the exchange rate of the renminbi against the US dollar is basically fluctuating between 6.2-7.1, and the fluctuation is very small.
In addition, China's overall market interest rate is significantly higher than the US market interest rate, and from the perspective of risk-free interest rates, RMB assets are more attractive. At present, the US 10-year Treasury yield is about 1.859%, and the Chinese 10-year Treasury yield is about 2.856%.
Previously, the Fed interest rate hike is approaching, the recent performance of the US stock market is very poor, after the conversion of the national currency into the US dollar, the space to get appreciation is decreasing, everyone does not dare to act rashly, and some funds are diverted to RMB assets.
What is the impact of exchange rate fluctuations on house prices?
Overall, the domestic exchange rate and house prices are basically negatively correlated. In other words, if the domestic exchange rate falls, the domestic house price will generally rise. In recent years, because the RMB exchange rate is relatively stable, it is difficult to see its impact on housing prices. But if we look at it from other countries, this feature will be very obvious.
According to the data released on March 28 last year, the house price-to-income ratio in some cities in the world, Tehran, Iran, reached 41, which is higher than the 21 in Hong Kong, China.
In November 2018, the average house price in Tehran, Iran, was 91.8 million rials (US$752) per square meter, up 91.5% from the same period a year earlier.
Russia is the same, before 2014, Russian house prices were basically stable, but after 2014, house prices in major cities have risen to varying degrees. From the chart below, we can see that Russia's housing prices once ranked second among major countries.
Turkey, which ranks first, has also seen its currency plummet in recent years.
From this, we can find that the depreciation of the currency often corresponds to the rise in house prices.
Why?
There are two main reasons:
First, the depreciation of the local currency is much due to monetary easing and low interest rates, and house prices are prone to rise in this environment.
Second, commodities are basically equivalent, such as an apple that rises 10% in A and is difficult to fall by 20% in B. Because in the context of global capital flows, apples in country A are too expensive and will come to country B to buy, or because there is speculation, the price difference between A and B will not be too large.
A house can be seen as a special commodity. If the currency of country A depreciates sharply and the currency of country B remains stable, then the 1 million currency of country B can buy a house in country A, and now it can buy two sets, which is not in line with the market law of commodity equivalent value. At this time, house prices in country A will rise to highlight that the value of their property has not changed.
At this level, when a country's currency depreciates, house prices rise, but house prices denominated in foreign currencies (provided that foreign currencies are also stable) remain unchanged.