Ahem, just after the National Day holiday, I, an ordinary person, am afraid that it will be difficult to escape the doom of injury. Let's not forget the recent surge in the long-end interest rate on U.S. bonds and the rise of the dollar index. This really worries me about the performance of the renminbi after the National Day. However, the offshore yuan has been trading during the National Day holiday, so looking at its performance, you can basically guess what kind of trend the onshore yuan will have after the holiday. Looking back at the performance of offshore RMB in the past week, we can also understand to a large extent the situation and pain points facing the RMB exchange rate.
The offshore renminbi's performance over the past week has been quite stable, which is not easy in the context of soaring US dollar and long-end US Treasury rates. The offshore yuan exchange rate has remained around 7.30 for most of the past week. In fact, since mid-August, the offshore RMB exchange rate has almost been fixed at the level of 7.30, while the US dollar index has risen from 103 to 106, which also reflects the stability of the offshore RMB exchange rate.
Fundamentally, the main factor supporting the offshore RMB exchange rate remains interest rates. Recently, the long-end interest rate of U.S. bonds has soared rapidly, but the short-end interest rate has been relatively stable. In contrast, short-term interest rates on offshore renminbi have risen significantly since mid-August. Take the one-month offshore yuan HIBOR as an example, which has remained at around 5% since August. Sino-US interest rates are basically flat in the short term, which largely inhibits the power of shorting the RMB and is also the fundamental reason why the offshore RMB exchange rate remains stable.
At the same time, the offshore RMB exchange rate can remain stable during the National Day period, which is a bit beyond the seasonal norm. After all, trading stops in the onshore market during the holidays, and there are usually some so-called "independent quotes" in the offshore yuan market. Since the exchange rate reform in 2015, the RMB exchange rate has generally been under pressure, so the so-called "independent market" is generally considered to be more inclined to depreciation, which is also the origin of the so-called "National Day curse" that has been spread in the market.
This concern has always existed about the trend ahead of this year's National Day holiday. The strength of the US dollar, coupled with signs of decline in mainland property sales data, the performance of the offshore yuan during the National Day holiday is not promising. Some people believe that before the holiday, the short-selling force will be released as much as possible, and the offshore yuan may depreciate, but as the holiday ends, they will gradually close their positions and wait for further signals from the onshore market.
The performance of the offshore yuan has proved to be "light and breezy" in the past week, with a low of around 7.33 and a final close of around 7.30 on Friday, which is not easy in the context of soaring US bond interest rates. We can also judge from this that the onshore market RMB is likely to remain stable for some time to come.
However, in the final analysis, the stability of the RMB exchange rate requires two forces: one is for the dollar to end the interest rate hike cycle, and the other is for China's economy to stabilize and recover. In the case of the former, the recent surge in long-end Treasury rates largely means that the transmission of monetary policy tightening has begun to accelerate, which is conducive to the Fed slowing the pace of tightening to assess the effects of past tightening. The latter is more critical, from the performance of recent Chinese economic data, in addition to the high-frequency transaction data of the real estate market has cooled, other data have shown signs of stabilization and recovery, which is undoubtedly a shot in the arm for the RMB exchange rate.
Whether bullish or bearish on Chinese assets, the RMB exchange rate is undoubtedly an important observation window for some time to come. However, the stability of the exchange rate necessarily requires the narrowing of the implied interest rate differential between the renminbi and the dollar. For the foreign exchange market, the most important indicator is still the number of one-year swap points. From the chart below, we can clearly see that the one-year swap points of the US dollar against the offshore yuan have risen sharply since mid-August and have also maintained an upward trend recently. From this point of view, we can use the term "pillow to be dold" to describe the current situation of the offshore RMB exchange rate, which is perhaps the most accurate description.
"He who speaks is not guilty, but he who hears is sufficient." What do you officials think of the passage I just continued? Welcome to leave your comments and opinions!