2024-08-05
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Reporter of China Business Network: Zhao Jingzhi Editor of China Business Network: Ma Ziqing
The RMB exchange rate rebounded strongly! The reporter of Daily Economic News noted that in just two trading days, the offshore RMB exchange rate against the US dollar soared from 7.25 to around 7.09, a range of more than 1,500 points. Not long ago, the offshore RMB exchange rate against the US dollar fell below 7.3.
During the trading session on August 5, the offshore RMB/USD exchange rate reached a high of 7.0836, which was the same as the high of the RMB exchange rate in December last year, and recovered the depreciation "lost ground" since the beginning of this year. Driven by the offshore RMB, the onshore RMB also rose by more than 1,000 points to around 7.13 in two days. As of 21:00 on August 5, the offshore RMB/USD exchange rate was 7.104, and the onshore RMB/USD exchange rate was 7.124. The offshore and onshore prices were inverted, and both exceeded the middle price of 7.1345.
China Everbright BankZhou Maohua, a macro researcher at the Financial Markets Department, said that the RMB exchange rate rebounded.First,The country has stepped up efforts to implement macroeconomic policies, and the market's expectations for economic recovery have increased;two isThe decline in US economic data exceeded expectations, and the sharp fluctuations in European and American stock markets triggered a demand for safe-haven funds. In addition, the strong rebound sentiment of the yen also had an impact on the RMB exchange rate.
On July 25, the People's Bank of China launched a medium-term lending facility (MLF) operation, with the winning bid rate falling by 20 basis points, but the RMB against the US dollar reversed its depreciation trend and showed a strong appreciation momentum. After entering August, the RMB exchange rate against the US dollar continued to rise, especially on August 2 and August 5, the offshore RMB appreciated by more than 1,500 basis points against the US dollar, wiping out all the declines since the beginning of the year and setting a new high for the year.
It is reported that exchange rate fluctuations are inseparable from internal and external factors. Zhou Maohua told reporters that from the domestic situation, the strengthening of the RMB is driven by three aspects.
First, the fundamentals are solid.Recently released data show that the economy has maintained a trend of recovery and expansion. The central bank has cut interest rates beyond expectations, stepped up the implementation of macroeconomic policies, and boosted market expectations for economic recovery. In the first half of the year, both foreign trade exports and trade surpluses exceeded expectations, the balance of international payments was balanced, and foreign exchange reserves remained stable above US$3.2 trillion. The sound fundamentals provide solid support for the RMB exchange rate.
Second, the attractiveness of RMB assets has increased.The domestic fundamentals outlook has improved, the macroeconomic policy environment is ideal, and the overall valuation of RMB assets is at a low point, so the market's bullish sentiment towards RMB assets is gradually accumulating.
Third, the supply and demand of offshore RMB is tight.The recent surge in offshore RMB interbank lending rates reflects that offshore RMB market demand is stronger than supply and the momentum for RMB appreciation has increased.
From the perspective of external factors, although there are differences of opinion on the pace and intensity of overseas interest rate cuts, there is a basic consensus that developed economies are gradually transitioning to a rate cut cycle. Zhou Maohua said, "So far, more than 20 economies around the world have implemented rate cuts." In the first half of the year, the European Central Bank and the Bank of Canada took the lead in starting rate cuts, and the Federal Reserve recently released a signal that it may start a rate cut cycle this year. The spillover effects of developed economies' policies on my country will gradually weaken.
From the perspective of the US-China interest rate differential, an important factor affecting the trend of the RMB, the interest rate differential has peaked and fallen since late April. As of last weekend, the US-China 10-year Treasury bond interest rate differential was -1.67%, compared with -2.01% in the previous period, showing a significant narrowing.
Zhou Maohua said that my country's economy is recovering steadily and prices are maintaining a moderate upward trend, which will constrain the downward space of market interest rates; at the same time, the Federal Reserve's economy and inflation are slowing down, and its policy is gradually shifting to a rate cut cycle. It is expected that the interest rate gap between China and the United States will gradually narrow.
"If the U.S. job market deteriorates beyond expectations in the future, it may prompt the Federal Reserve to accelerate the pace of interest rate cuts, further weakening the impact of the interest rate differential on the RMB exchange rate." Zhou Maohua said that although there is still great uncertainty in the overseas political and economic environment, the direction of the domestic economic recovery and the Federal Reserve's interest rate cut cycle are relatively certain, my country's foreign trade is resilient, the balance of international payments remains basically balanced, and the attractiveness of RMB assets is increasing. The environment facing the RMB this year is relatively favorable, and the RMB exchange rate is expected to remain stable with a slight increase, and will be stable relative to major international currencies.
In addition to internal factors and interest rate cuts in some developed economies,The impact of the Bank of Japan's unexpected hawkish stance should not be underestimated. The "loosening and tightening" policy has further boosted the appreciation of the RMB.The yen depreciated significantly against the U.S. dollar in the first half of this year. On July 31, the Bank of Japan announced a 15 basis point rate hike, raising the policy rate to 0.15% to 0.25%. The market generally believed that the rate hike was "beyond expectations."
Judging from the performance of the yen, the yen-to-dollar exchange rate has soared in the past month, rising rapidly from 161 on July 11 to 142 on August 5, reaching a high in at least seven months. According to Kyodo News, the interest rate gap between Japan and the United States is expected to narrow, and investors are buying yen and selling dollars.
Some people believe that the expectation of a Japanese yen rate hike and the reversal of carry trades may have pushed up the Japanese yen exchange rate, while also boosting the appreciation of the RMB. Zhou Maohua said that the linkage between the RMB and other currencies such as the Japanese yen has indeed increased, which is mainly due to the continuous integration of my country's economy and finance into the world.
Zhou Maohua believes that, on the whole, the economic slowdown in developed economies, pressure on corporate earnings prospects, geopolitical conflicts, trade protectionism, and risks of the US election have increased volatility in overseas markets. In addition, the overall high level of overseas asset stocks has increased risks compared to returns. However, the domestic economy, policies, and corporate earnings prospects are relatively certain, and RMB assets with low valuations are expected to become a "safe haven" for global funds.
Daily Economic News
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