RMB against the US dollar, the highest value this year!

The country is a through train

2024-08-06 22:43Published on the official account of China News Service "The Country is a Through Train" in Beijing

Text/Chabin

first broke 7.2, and then broke 7.1, and the RMB exchange rate against the US dollar continued to rise sharply!

In the foreign exchange market, the spot exchange rate of RMB against the US dollar pulled out a steep upward curve last Friday (August 2), rising above 7.2, and continued to rise on Monday (August 5), with the highest point of the spot exchange rate of offshore RMB against the US dollar hitting 7.0826, a new high this year.

What is supporting the rise of the yuan? How long can this rally last?

The resonance of multiple factors pushed the RMB to rise sharply

In the recent violent turmoil in the global financial market, the RMB exchange rate has rebounded strongly.

According to Wang Youxin, a senior researcher at the Bank of China Research Institute, the superposition of multiple factors has promoted the sharp rise in the RMB exchange rate. From the technical correction to the decline of the US dollar index, to the strong appreciation of the yen, as well as the changes in the global economic, financial and monetary policy environment, many factors have had a positive impact on the RMB exchange rate, supporting the strong rebound of the RMB exchange rate.

First, there is an intrinsic driving force for the return to equilibrium value at the technical level. Wang Youxin pointed out that the previous trend of the RMB exchange rate showed certain signs of overshooting, the spot exchange rate has deviated significantly from the middle price for a long time, and the market depreciation is expected to be strong.

Second, United States recession fears and Fed interest rate cut expectations have heated up again, and the dollar index has quickly fallen from its highs. Wang Youxin said that in fact, since June, the economic growth momentum of United States has shown obvious signs of decline, and many indicators are under pressure to varying degrees, and the market expects the Fed to cut interest rates by 50 basis points in September and November, and another 25 basis points in December. As a result, the U.S. dollar index weakened, and the external constraints on the RMB exchange rate weakened significantly.

Third, the sharp appreciation of the yen and the reversal of the "carry trade" between Japan and the United States have improved international investors' preference for emerging Asian currencies such as the renminbi. The divergence of monetary policy between Japan and the United States and the blockage of the "carry trade" chain between Japan and the United States have led to a rapid return of international speculative funds to Japan, driving the yen to rebound from historical lows, and the market's risk appetite for Asian currencies such as the yuan has also rebounded.

Fourth, the continuous release of domestic policy dividends has significantly boosted the confidence and expectations of market players in the sustained recovery of the mainland economy. Wang Youxin believes that the Third Plenary Session of the 20th Central Committee of the Communist Party of China has made systematic arrangements for further deepening reform in an all-round way, emphasizing the construction of a high-level socialist market economy system and improving the system and mechanism for promoting high-quality economic development, which has boosted the market's confidence in China's economic development in the second half of the year and promoted the exchange rate higher.

How long can the renminbi's rally last?

It should be noted that since July, the U.S. dollar index has shown a downward momentum, but the RMB exchange rate did not rise accordingly at that time, thus accumulating the potential energy of "making up for the rise".

Zhong Zhengsheng, chief economist of Ping An Securities, said bluntly that in the short term, the space for RMB to "make up" is relatively limited. Judging from the data performance, the RMB exchange rate has remained relatively strong during the year. In other words, the "non-rise" of the RMB exchange rate in July for nearly a month is also due to the previous "non-falling", which means that the space for the RMB to "make up for the rise" this time may not be wide.

He believes that judging from the current situation of China's balance of payments, there are still a number of repressive factors in the RMB exchange rate, and whether the RMB can continue to appreciate fundamentally depends on whether China's economy can be stable and far-reaching. For example, interest rate differentials between China and the United States remain historically low, and constraints on capital inflows under the financial account remain significant. The key to breaking the interest rate gap between China and the United States is still the competition between China and the United States for economic resilience, focusing on whether the Fed will continue to cut interest rates and whether China's stable growth can achieve more practical results.

In addition, the settlement and sale of foreign exchange by banks on behalf of customers and foreign-related receipts and payments are still in double deficit. The main reason for the change from positive to negative in the total balance of income and expenditure is that the capital and financial accounts have turned into deficits. In the capital and financial accounts, the deficit contribution is mainly from direct investment. In order to moderate the net outflow of capital under direct investment, it is necessary for foreign direct investment to stabilize and rebound.

Zhong Zhengsheng also mentioned that the willingness of enterprises and residents to hold foreign exchange is still strong. With the release of the flexibility of RMB fluctuations, it will be of great help to correct the expectation of RMB depreciation, and the willingness of economic agents to settle foreign exchange will also be restored, thereby strengthening the momentum of RMB appreciation.

"The complexity of the global political and economic situation and the sharp fluctuations in the financial market may prompt more international capital to seek a 'safe haven' in the world, the RMB exchange rate has a high stability, the RMB assets are currently in a value depression, and the endogenous growth momentum of China's economy continues to strengthen, it is foreseeable that the current and next few months RMB assets will receive more attention." Wang Youxin said that the People's Bank of China has also repeatedly stated that it will continue to maintain the basic stability of the RMB exchange rate at a reasonable and balanced level, and that comprehensive measures, correction of deviations, and stabilization of expectations will help promote the stable fluctuation of the RMB exchange rate.

But he also cautioned that it is worth noting that after the United States election in November, China's exports face potential tariff adjustment risks, which may bring short-term disturbances to the RMB exchange rate.

Source: The country is a through train

Editor: Gao Yanjiao

Editor-in-charge: Wei Xi

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