As the high US CPI data in April heated up expectations of the Federal Reserve's continued sharp interest rate hikes, the RMB exchange rate entered a new round of bottoming out.
As of 19:00 on May 12, the onshore market rmb/DOLLAR exchange rate (CNY) hovered at 6.7892, a correction of 682 basis points from the previous trading day, and once touched the intraday low of 6.7945; the offshore market rmb/DOLLAR exchange rate (CNH) hovered at 6.8120, 500 basis points from the previous trading day, and once touched the lowest point since September 2020 at 6.8292.
A Wall Street hedge fund manager pointed out to reporters that behind the continuous correction of the RMB exchange rate on May 12, the high US CPI data in April stimulated the market to bet on the Federal Reserve or a single interest rate hike of 75 basis points, driving the DOLLAR index to hit a high of 104.52 in the year, dragging down the continuous correction of the RMB exchange rate. In addition, the Fed's sharp sharp interest rate hike above expectations has also led to the expansion of the inversion of the Sino-US interest rate differential, posing new downward pressure on the RMB exchange rate.
"Not just the renminbi, but the South Korean won, the Thai baht and the Malaysian ringgit all hit intra-year lows on May 12 amid the federal reserve's chances of sharply raising interest rates more than expected." He pointed out.
In the view of a Hong Kong bank foreign exchange trader, compared with the past, the RMB exchange rate correction on May 12 showed two major differences, one is that the exchange rate difference between offshore RMB and onshore RMB remains between 200-280 basis points, indicating that overseas speculative capital has not significantly increased the short selling of offshore RMB; second, there is no obvious expectation of significant depreciation of derivatives such as RMB forwards and options, indicating that the market expects that the RMB exchange rate may have fallen into the bottom range.
"During most trading hours on May 12, the RMB exchange rate maintained a high negative correlation with the US dollar index, which also indicates that the long-short game situation in the foreign exchange market is relatively stable." He thinks.
A foreign exchange trader at a large state-owned bank pointed out that as the RMB exchange rate continues to retrace, it is not excluded that the relevant Chinese departments may take stable measures to curb the abnormally large fluctuations in the RMB exchange rate.
On May 9, the People's Bank of China said that it would enhance the flexibility of the RMB exchange rate, give play to the function of exchange rate adjustment macroeconomic and balance of payments automatic stabilizer, strengthen expectation management, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
"The correction in the RMB exchange rate may only be a short-term phenomenon, as the market generally expects that the relevant Chinese authorities will have sufficient tools to stabilize the RMB exchange rate." He pointed out. At present, some large asset management institutions have established long positions in the RMB exchange rate between 6.81 and 6.83, waiting for the opportunity to copy the RMB exchange rate.
As of 19:00 on May 12, the onshore market renminbi exchange rate (CNY) against the US dollar hovered at 6.7892, a correction of 682 basis points from the previous trading day. Xinhua
Release the downward pressure of the renminbi in advance?
The reporter learned from many parties that after the April CPI data released by the United States on the evening of May 11 continued to be high, driving the financial market to bet on the Fed's single interest rate hike of 75 basis points, the foreign exchange market has expected that the RMB exchange rate will usher in a new round of bottoming out the next day.
"Since the early trading on May 12, many overseas hedge funds and banks have bought down the offshore RMB exchange rate." The foreign exchange trader of the Hong Kong bank told reporters. Behind this, they noticed that the RMB exchange rate against the US dollar was slightly adjusted by 2 basis points on the day, and believed that the relevant Chinese departments or intend to fully release the downward pressure on the RMB exchange rate, and then boldly buy down the RMB exchange rate.
In his view, another important reason for the continuous correction of the RMB exchange rate on May 12 is that under the expectation of a single interest rate hike of 75 basis points by the Federal Reserve, many overseas hedge funds have begun to re-lower the equilibrium exchange rate of the RMB exchange rate to 6.9.
"Fortunately, despite the new correction in the RMB exchange rate, the long-short game situation in the market is relatively stable." The Hong Kong bank forex trader pointed out. Specifically, different market players are in order – for example, overseas hedge funds have bought and fallen offshore renminbi because they have lowered the equilibrium exchange rate of the renminbi exchange rate, some overseas banks have seen the dollar index continue to reach new highs and bet on the decline of the offshore renminbi exchange rate, and export companies have taken advantage of the retracement of the renminbi exchange rate to increase their foreign exchange settlement, making the supply and demand relationship in the foreign exchange market appear relatively balanced.
Especially in the offshore forward foreign exchange market, overseas hedge funds have not taken advantage of the offshore RMB exchange rate to fall below the 6.8 integer mark and buy large-scale option derivatives with a bearish RMB exchange rate. The reason is that as the RMB exchange rate continues to retrace, the market believes that the relevant Chinese departments will soon take measures to strengthen the management of expectations, and there is no strong willingness to short sell the RMB arbitrage.
A hong Kong private equity fund leader revealed to reporters that most of the overseas speculative capital that participated in the short sale of offshore renminbi on May 12 still adopted the practice of borrowing offshore renminbi on a daily basis to sell short, and once the relevant Chinese departments took measures to stabilize the exchange rate, they quickly took profits and left the market.
In his view, this has made the exchange rate differential between the domestic and foreign RMB exchange rates continue to stabilize between 200-280 basis points, resulting in overseas speculative capital to significantly depress the offshore RMB exchange rate and arbitrage The odds of short arbitrage are quite low.
New challenges to currency stability in Asia
In the view of many industry insiders, under the pressure of the Federal Reserve or will exceed expectations of sharp interest rate hikes, the renminbi, South Korean won, Malaysian ringgit, and thai baht have all hit lows in the year, indicating that Asian currencies are facing challenges to cope with the heating up.
An emerging market investment fund manager revealed to reporters that the collective decline in the exchange rate of Asian currencies is now significantly different from the end of April - at the end of April, the sharp depreciation of the yen led to a round of rapid decline in Asian currencies, and since May, the biggest factor triggering the collective decline of Asian currencies is that the Federal Reserve has risen more than expected and the US dollar index has continued to reach a new high.
"But it's the same end. At present, the financial markets are full of speculative capital, and as long as the exchange rate of one of the Asian currencies falls sharply and rapidly, they are waiting for the opportunity to buy down other Asian currencies for arbitrage. He pointed out. This invisibly poses a new challenge to the monetary policy of Asian central banks – while falling exchange rates help boost export competitiveness, it can also trigger larger capital outflows and a sharp increase in import inflationary pressures. In this context, when formulating future monetary policies, more and more central banks in Asian countries have to focus on curbing high inflation and promoting economic growth, while taking into account preventing larger-scale capital outflows and maintaining the stability of their currencies' exchange rates.
A chief representative of a large European asset management institution in the Asia-Pacific region pointed out to reporters that this indicates that many Asian central banks have to follow the Fed to raise interest rates sharply to prevent capital outflows and sharp depreciation of their currencies.
"At the same time, there has been a strange phenomenon in the foreign exchange market in recent days, that is, the Bank of Japan is still continuing its extremely loose monetary policy, but because the yen has depreciated by more than 12% during the year, more and more asset management institutions believe that the yen may be oversold and are actively bottoming out the yen." He pointed out. This suggests that the exchange rate stabilization effect of the market's autonomous regulatory forces may exceed the monetary policy adjustment in Asian countries.
The chief representative of the Asia-Pacific region, a large European asset management institution, revealed to reporters that the current RMB exchange rate has also appeared in a similar situation. After the renminbi exchange rate fell by more than 5% in the past three weeks, some global asset managers have also begun to bottom out the renminbi, because they believe that speculative capital speculation has made the renminbi exchange rate lower than the equilibrium exchange rate, and as Chinese companies resume work and production to restore steady economic fundamentals, the renminbi exchange rate will soon usher in a return to value.
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