The yuan fell below the 6.84 mark, hitting a 7-year low or tolerating greater volatility
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However, there were no clear signs of central bank intervention on the market yesterday. Market participants believe that China's macro data since August shows that the economic steady state is basically adjusted, which makes the pressure on “stable growth†weaken and can tolerate greater fluctuations at the exchange rate. This provides the central bank with more room for the RMB exchange rate. It does not have to worry about the excessive negative impact on the Chinese real economy due to exchange rate fluctuations and the transmission of asset prices.
At the same time, market participants believe that excessive attention should be paid to the short-term disturbances caused by market factors such as the strengthening of the US dollar, and more attention should be paid to the medium- and long-term trends of economic development. In the long run, the central bank should continue to accelerate the pace of exchange reform, so that the RMB exchange rate can be freely floated as soon as possible, and the depreciation expectation can be eliminated from the root cause.
The renminbi is still stable
Near 17:00 pm yesterday, the onshore renminbi exchange rate against the US dollar fell to a minimum of 6.8450, a record low in seven years; the offshore renminbi exchange rate against the US dollar was reported at 6.8551.
Some foreign exchange traders said that in the market, some banks sold their own dollars at the high level of their own trading. However, there are no obvious signs of central bank intervention.
The central parity of the RMB against the US dollar was reported at 6.8291 on the same day, down 176 basis points from the previous trading day. This is the seventh consecutive trading day in which the central parity of the RMB against the US dollar has fallen. Just last Friday, the central parity of the RMB against the US dollar was reported at 6.8115, the first time in more than six years, it fell below 6.80.
Market participants believe that after the results of the US presidential election last week, the market rebounded quickly after a short-term decline. With the rise of the US dollar index, it is not surprising that the current implementation of the renminbi with reference to a basket of currencies to establish a median price mechanism is under downward pressure.
At the same time, the RMB exchange rate indices of the three currency baskets of CFETS (China Foreign Exchange Trading Center), BIS (BIS) and SDR (Special Drawing Rights) are still relatively stable. The latest data shows that as of the 11th week, the above three index weekly gains have continued to rise.
Compared with the currencies of the world's major economies such as the euro, the yen and the pound, the renminbi remains relatively stable. According to WIND statistics, in the past 5 days, the US dollar has appreciated by an average of about 4% against currencies such as the euro, the yen, the Canadian dollar, and the British pound, while the US dollar has appreciated only about 1% against the onshore renminbi.
Short-term involvement in the dollar's rise
For the reason of the current round of RMB decline, the market has basically reached a consensus: in the short term, it is mainly driven by external factors such as the continued strength of the US dollar.
Yesterday, the US dollar index rose further, and the Asian market broke through the 100 mark in the end. This set a new high in the US dollar index in 11 months, with an increase of about 1% in the day. Just last week, the dollar continued to rise for five consecutive weeks, rising more than 2% in a single week, the biggest weekly gain in a year. Last Friday, the US dollar index rose to 99.13, a nine-month high.
For the reason for the dollar's upside, Futuo's foreign exchange analyst Zhong Yue said yesterday that the market is heavily undervalued based on the large-scale fiscal stimulus, tax cuts, expansion of infrastructure investment and relaxation of financial supervision that Trump may launch after taking office. Risk assets, US stocks are approaching historical highs, the US dollar has risen sharply, US bond yields have rebounded, and gold has plummeted.
At the same time, the Fed’s interest rate hike is expected to rise again to more than 80% in December, which further boosted the dollar. On Thursday evening, Beijing time, Federal Reserve Chairman Yellen will testify on the economic situation at the Joint Economic Committee, which will be a key risk event this week. In addition, before Yellen’s testimony, several Fed officials gave speeches, which will make the Fed’s interest rate hike prospects clearer in December.
Bank of Communications International analyst Tan Wei said yesterday that if the Fed raises interest rates in December, the US dollar will weaken as expected, and the downward pressure on the yuan will ease slightly.
Or tolerate greater exchange rate fluctuations
Yesterday, the psychological barrier of “6.83†triggered market attention. Because this indicator is the key to the long-term sideways renminbi exchange rate against the US dollar after the global financial crisis in 2008.
However, there seems to be no signs of central bank intervention on the market yesterday. Why does the regulator allow the RMB exchange rate to break through the so-called market psychological barrier?
Zhang Jun, an economist at Morgan Stanley Huaxin Securities, said that if the Chinese economy stabilizes and the government's pressure on “stable growth†weakens, it will tolerate greater fluctuations at the exchange rate. Judging by a series of Chinese economic data since August, the Chinese economy has no suspense to break through the 6.5% growth target during the year. This provides the central bank with more room for the RMB exchange rate. It does not have to worry about the exchange rate fluctuations, and it will have a huge negative impact on the Chinese real economy after the asset price is transmitted.
At the same time, several economists and market participants stressed that it should avoid excessive attention to short-term disturbances caused by market factors, but should pay more attention to medium- and long-term trends. Some market participants have suggested that in the long run, the central bank should continue to speed up the exchange rate reform so that the RMB exchange rate can be freely floated as soon as possible, and the depreciation expectation can be eliminated from the root cause.
UBS special economist Wang Tao also predicted that if the US dollar weakens and the US does not raise tariffs on Chinese products, the exchange rate of the RMB against the US dollar may be stronger than expected at the end of next year. Conversely, the exchange rate of the RMB against the US dollar may exceed 7.2 at the end of 2017.
Zhang Jun said that if the US economy strengthens and the pace of normalization of the Fed's monetary policy is more determined, this will increase the pressure on the local currency and capital outflows for emerging market countries including China.