2023-06-21 11:10:00
On June 21, the offshore USD/RMB exchange rate touched the 7.20 mark in intraday trading. Market participants pointed out that the interest rate difference between China and the United States has widened due to the domestic central bank’s interest rate cuts, which may still put pressure on the RMB exchange rate in the short term. However, the Fed’s interest rate hike cycle is coming to an end, and the domestic growth stabilization policy is expected to heat up. It is expected that the RMB exchange rate will remain in a wide range Shock, the USD/RMB exchange rate is clearly supported around 7.3.
The above-mentioned market participants believe that the current acceleration of RMB fluctuations is caused by the periodic reversal of economic expectations between China and the United States, the decline in China’s exports, the divergence of monetary policies between China and the United States, the inversion of interest rate differentials between China and the United States, and the rise of the U.S. dollar index. However, there is a high probability that the US dollar will not break through the key position of “7.3” against the renminbi. With the recent strengthening of domestic stable growth signals, the US dollar may peak against the renminbi.
Domestic economic policy will be a decisive factor in the yuan’s high
Zhou Maohua, a macro researcher at the Financial Market Department of China Everbright Bank, told Shell Finance and Economics that from the perspective of macro indicators and my country’s balance of payments, the short-term fluctuations in the RMB exchange rate have not deviated from the reasonable range. At the same time, the foreign exchange market sentiment remains stable, and the flexibility of the RMB exchange rate has increased significantly .
In addition, domestic production and life are returning to normal at a faster pace, and service consumption has maintained a rapid recovery trend. Coupled with strong macro policy support, the domestic economy is recovering steadily, and the stability of the RMB exchange rate is supported by solid fundamentals.
From the perspective of trends, the internal and external environment continues to be favorable to the RMB. There is no need to worry too much about short-term fluctuations in the RMB exchange rate. Domestic counter-cyclical support policies have been launched. The economic outlook is expected to gradually improve. In the second half of the year, the RMB exchange rate will continue to fluctuate in two directions near a reasonable and balanced level.
Fan Ruoying, a researcher at the Bank of China Research Institute, told Shell Finance that the recent fluctuations in the RMB are the result of a combination of multiple factors. The growth momentum of the domestic economy has slowed down, and the fundamental support for the RMB exchange rate has weakened, which has affected market sentiment. In addition, under the background of external demand pressure, my country’s export growth rate has declined significantly, affecting the current account surplus and exchange balance. In the end, although the Federal Reserve suspended raising interest rates in June, it hinted that there are still two interest rate hike plans this year and will not start to cut interest rates this year. The hawkish remarks pushed the US dollar index further higher.
Fan Ruoying pointed out that since the beginning of this year, the two-way fluctuation of the RMB exchange rate has become more obvious, which is actually a manifestation of the more market-oriented RMB exchange rate. In the future, the two-way fluctuation of the RMB will still be the norm. In the second half of the year, the RMB exchange rate is expected to stabilize, and the probability of appreciation is relatively high. On the one hand, the domestic economy as a whole is still in the process of recovery, and the future macroeconomic policy is expected to be further increased to promote economic recovery; on the other hand, the Federal Reserve is already at the end of the monetary tightening cycle, and the U.S. dollar index is likely to fall from a high level in the future.
Jerry Chen, a senior analyst at GAIN Capital Group, believes that the current interest rate differential between China and the United States is at a relatively high level, which may boost the carry trade in the offshore market. At the same time, the third quarter is the peak period for foreign exchange purchases of dividends paid by listed companies outside China, and the RMB tends to weaken seasonally. In addition, it is necessary to observe when the divergence of monetary policies between China and the United States will be reversed in the future. It is expected that the pressure on the RMB exchange rate may ease in the fourth quarter.
Zhang Yiping, co-chief of macroeconomics at China Merchants Securities, pointed out that the current internal and external situation does not support the overall strengthening of the renminbi in the short term. The external US dollar index is still under pressure on the renminbi. It is difficult for the internal market yield to rise significantly. China and the United States continue to maintain negative interest rate differentials. The strengthening of the RMB exchange rate may not come until the second half of the year.
Guotai Junan Macroeconomic Dong Qi’s team pointed out that the RMB exchange rate may enter a volatile situation in the middle and late stages of the third quarter, and the effect of domestic economic boosting policies will be highlighted by the end of the third quarter, and the RMB is expected to return to the stage of slight appreciation. In the middle and later stages of the third quarter, economic expectations reversed again and the monetary policy tightened, which may have a certain boost to the RMB, so as to maintain volatility. Domestic economic policies will be the decisive factor for the high point of the RMB.
The trend of the US dollar index may be near strong and far weak
Market participants said that the current Fed rate hike cycle is coming to an end, and the U.S. dollar index is expected to weaken in the medium and long term, which will ease the pressure on the RMB exchange rate to a certain extent. However, expectations for a stronger dollar have risen in the near future.
Zhou Maohua pointed out that the Fed officials recently released hawkish signals, and the market expects the Fed to raise interest rates in July, leading to a tightening of the U.S. financial environment again. To a certain extent, it boosted the safe-haven demand for the U.S. dollar, which may trigger market expectations for a stronger U.S. dollar.
After the Fed’s aggressive interest rate hike, the economic outlook has slowed down. The Fed’s interest rate hike cycle is coming to an end, and the outlook for the US dollar is weakening. According to the data, the resilience of American residents slightly exceeded expectations, but it showed a slowing trend. The aftermath of the Fed’s aggressive rate hikes is still expected to emerge gradually.
In addition, the current overseas inflation, policy and economic prospects are highly uncertain, resulting in greater volatility in the global market, which will also have a partial impact on the RMB exchange rate.
Beijing News Shell Finance reporter Zhang Xiaochong
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