2024-09-20
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reporter of china business network: zhang shoulin editor of china business network: zhang yiming
on september 19, the offshore rmb appreciated significantly during the trading session. on that day, the offshore rmb appreciated to 7.0604 against the us dollar, a sharp increase of more than 300 points from the previous day's closing price of 7.0952. the offshore rmb rose rapidly during the day, fluctuating upward from 7.1136 at 9:40 in the morning to 7.0604 at around 3 pm, with an appreciation of more than 500 points, and then began to converge.
"this is how the capital market reacts, rapid appreciation and cross-market arbitrage." a person from the financial market department of a commercial bank told reporters.
regarding the sharp appreciation of the rmb in a short period of time, the reporter of the national business daily interviewed tang yao, associate professor of the department of applied economics at the guanghua school of management at peking university. he said that it was mainly driven by the overall weakening of the us dollar. the latest interest rate cut by the federal reserve was hawkish, which exceeded the expectations of some people, and the latest forecast for the interest rate at the end of the year was 0.7% lower than the previous forecast. these factors combined to cause the us dollar to weaken significantly in the short term.
shao xiang, senior macroeconomic analyst at minsheng securities, pointed out in an interview with the reporter of the "daily economic news" that under the combined influence of internal and external factors, the renminbi appreciated significantly today.
offshore rmb against usd intraday trend image source: wind
in the early morning of september 19th, beijing time, the federal reserve announced a 50 basis point interest rate cut, exceeding the market's earlier expectation of 25 basis points. this is also the first time the federal reserve has changed its direction after raising interest rates for several consecutive years, causing fluctuations in global financial markets.
after the federal reserve announced a 50 basis point rate cut, the u.s. dollar index fell rapidly, dropping by 0.49% in half an hour. it then rebounded, but then fell sharply.
image source of the intraday trend of the us dollar index: wind
as the us dollar fell, the onshore rmb appreciated rapidly against the us dollar, rising all the way from a low of 7.1088 to a high of 7.0600 at 17:30, an increase of 488 points.
onshore rmb/usd intraday trend image source: wind
"interest rates have been cut overseas. for arbitrageurs, they can bet on a rebound in rmb asset prices and overseas funds will flow in accordingly." a person from the financial market department of a commercial bank told reporters.
"in the short term, the us dollar has cut interest rates, and there are also expectations of lower reserve requirements and interest rates in china. at present, the rmb exchange rate against the us dollar fluctuates roughly between 7 and 7.2." after the fed cut interest rates,peking university guanghua school of managementtang yao, associate professor of the department of applied economics, still sticks to his previous judgment.
regarding the logic of rmb appreciation, shao xiang told reporters that from the perspective of external factors, the fed's official interest rate cut of 50bp exceeded many people's expectations. the market also tends to believe that the fed's actual interest rate cut will be more aggressive than what it currently claims in the future. therefore, the us dollar index fell sharply today after rising last night, which created favorable conditions for rmb appreciation.
from the perspective of internal factors, in the face of unexpected easing overseas, the market also holds higher expectations for domestic reserve requirement ratio and interest rate cuts. as monetary conditions further improve, the domestic economic trend is also expected to stabilize and rebound, which also supports the further appreciation of the rmb. overall, under the combined effect of changes in the foreign environment and domestic economic expectations, the room for rmb appreciation has been opened.
in fact, the dollar has been falling for some time. the reporter noticed that since late june, the dollar index has been fluctuating downward from above 106 at the beginning of the month.
recent trend of the us dollar index image source: wind
corresponding to the decline of the us dollar index, the rmb exchange rate has recently turned upward, recovering a large part of its previous losses. in late july, the onshore rmb exchange rate against the us dollar was still above 7.277, and has continued to appreciate since then. it is now below 7.1, with an appreciation of more than 1,700 basis points. in particular, in the past week, the rmb exchange rate against the us dollar has rapidly appreciated by nearly 600 basis points from 7.1194.
recent trends of onshore rmb against the us dollar image source: wind
against the backdrop of falling us dollar assets and the rebound of the rmb, china's foreign exchange reserves increased by us$31.8 billion at the end of august. a relevant official of the state administration of foreign exchange pointed out that in august 2024, affected by factors such as macroeconomic data and monetary policy expectations of major economies, the us dollar index fell and global financial asset prices generally rose. the combined effect of factors such as exchange rate conversion and asset price changes led to an increase in foreign exchange reserves that month.
xia le, chief economist of banco bbva asia, recently told the daily economic news that the rmb exchange rate can be divided into three stages: short-term, that is, until the end of this year; medium-term, roughly within a year, that is, from september this year to september next year; and long-term, even up to five to ten years.
xia le said that it is easier to judge in the long term, mainly depending on the performance of the chinese economy. he believes that in the next five to ten years, the renminbi will have great room for appreciation. because the inflation level in europe and the united states has been high in the past period of time, the actual purchasing power of the renminbi is actually higher than theirs. so if we look at it optimistically, the renminbi may rise to 6 in the long term.
in the short term, xia le believes that there is uncertainty. from now until the end of the year, the rmb exchange rate range is roughly between 7.0 and 7.3. at present, before the end of the year, the external factors affecting the rmb exchange rate are the fed's interest rate cut and the us election results.
regarding the latest rmb trend, the team of wang qing, chief macro analyst of orient securities, analyzed that the rmb exchange rate is currently affected by two factors: one is the trend of the us dollar, which will cause the rmb exchange rate against the us dollar to passively appreciate or depreciate; the other is the domestic macroeconomic trend, which determines the intrinsic appreciation or depreciation momentum of the rmb.
wang qing, chief macro analyst at orient securities, analyzed that judging from the trend of us stocks, us bonds and the us dollar after the announcement of the rate cut, the extent of this rate cut is in line with market expectations. after the fed cuts interest rates, the impact on the rmb exchange rate is mainly reflected through the trend of the us dollar, which in turn depends mainly on the pace of the next rate cut. if the fed cuts interest rates at a faster pace, exceeding market expectations, the us dollar index may fall below 100, and the rmb exchange rate against the us dollar will move closer to 7.0, and the possibility of returning to the 6-digit mark in the short term cannot be ruled out. on the contrary, if the rate cut is slow, the fluctuation of the us dollar index is limited, and the rmb exchange rate against the us dollar will remain basically stable.
regarding the medium- and long-term trends, tang yao said that in the next three years, the fluctuation range of the rmb can be wider and may be maintained at the level of 6.7~7.3.
in an interview with the daily economic news on the eve of the fed's rate cut, hong hao, chief economist of si rui group, pointed out that under the fed's rate cut, the rmb exchange rate has an opportunity to appreciate. at the same time, the depreciation expectations have slowed down, and funds are expected to flow back to my country. whether it is because the valuation of us stocks is expensive or because the returns obtained by funds staying in the united states are rapidly declining, the expected difference in yields between china and the united states will decrease, which will increase the momentum of capital flowing back to my country.
hong hao analyzed that the latest employment data showed that the us economy was slowing down. a series of forward-looking indicators also suggested that the us inflation rate may decline rapidly in the future. this reminds us that the us economic outlook may face a rapid slowdown in growth. of course, it does not mean that the us will enter a recession immediately, but it means that under this economic situation, especially under the premise that the federal reserve's monetary policy has lagged behind, it is inappropriate to only slightly reduce interest rates by 25 basis points.
yang delun, chief economist of haikaiyuan fund, pointed out that this interest rate cut is not an isolated incident, but the beginning of an interest rate cut cycle that may last for more than a year.
yang delong analyzed that after the fed's 11th sharp rate hike in july last year, the us benchmark interest rate reached a high of 5.25% to 5.5%, and remained unchanged for eight consecutive times. this time, the fed chose to directly cut interest rates by 50 basis points instead of 25 basis points, indicating that its monetary policy goals are changing. fed chairman powell mentioned in his statement after the meeting that the fed's monetary policy goals are to stabilize prices and ensure full employment, so he focuses onCPIdata and unemployment rate.
the unemployment rate rose to 4.3% in july and 4.2% in august, indicating that the fed's monetary policy goals have changed. in august, the us cpi fell to about 2.5%, close to the fed's long-term inflation target of 2%, which means that fighting inflation is no longer the main goal at present, but has turned to stable growth. after the fed has more economic data, it believes that the us economic growth rate is indeed slowing down. therefore, at this meeting, the vast majority of participants agreed to cut interest rates by 50 basis points, and only one person opposed it and suggested a 25 basis point cut.
yang delong predicts that the fed may cut interest rates by 25 basis points in november and december, a total of 100 basis points this year, and another 3 to 4 cuts next year, lowering the benchmark interest rate from 5.25% to 5.5% to around 3%, which will be conducive to economic recovery. after this rate cut, the fed's benchmark interest rate fell to 4.75% to 5%, reducing the debt burden of american companies and residents. the market expects that interest rates will continue to be cut in november and december, starting an easing cycle.
for the domestic economy,boc securitiesguan tao, the world's chief economist, recently pointed out in an interview with the daily economic news that, given other conditions remain unchanged, the fed's interest rate cut will help converge the divergence of economic cycles and monetary policies between china and the united states, ease the pressure of capital outflows and exchange rate adjustments in china, and expand the autonomy of china's monetary policy. however, we should not expect too much from this.
guan tao analyzed that, first of all, as a large open economy, china has always insisted on self-centered monetary policy. before 2022, in the response to this round of epidemic, china's monetary policy was first-in-first-out, playing the role of leader rather than follower. in the future, the fed's interest rate cut does not mean that china will inevitably follow the reserve requirement ratio and interest rate cut, because china also needs to take into account the long-term and short-term, internal and external balance, stable growth and risk prevention.
secondly, after the first rate cut, the market focus will shift to the timing and magnitude of the next rate cut by the fed. market expectations will continue to switch between a soft landing, a hard landing, and no landing for the us economy, and international financial turmoil is inevitable. if the us economy does not decline, the fed will most likely not cut interest rates significantly, and the us dollar will not weaken in a trend. the market is currently suspected of being ahead of the curve. those who expect the fed's rate cut to open up monetary policy space for china may be disappointed.
guan tao pointed out that no matter what happens to the us economy, it will have both advantages and disadvantages for the chinese economy. the key for china is to do its own thing well.
if the us economy does not go into recession, it is possible that the federal reserve will not cut interest rates significantly and the us dollar will not trend downward. this will continue to pose external constraints on china's monetary policy and will temporarily increase pressure on china's capital outflows and exchange rate adjustments, but it will help stabilize external demand and support the smooth operation of the chinese economy.
if the us economy falls into recession, it may trigger a sharp interest rate cut by the federal reserve. after the market's risk aversion subsides, the us dollar will tend to weaken. this will help open up space for china's monetary policy and ease external pressure on china's capital outflow and exchange rate adjustment. however, it will not be conducive to stabilizing external demand and will affect the smooth operation of the chinese economy.
as for china, guan tao suggested that it is necessary to make contingency plans based on scenario analysis and stress testing to be prepared for any eventuality.
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