Foreign Exchange Accounted For A Downward Trend, RMB Unilateral Appreciation Or Break.

With the sharp fall in the middle and late 2 months, RMB rate Gradually becoming the focus of market attention, we try to sort out and analyze the external factors and mutual influencing factors of the RMB exchange rate and foreign exchange occupation.

From the three quarter of 2012, the renminbi depreciation The expectation is reversed, the spot exchange rate appreciates sharply, while the middle price remains relatively stable, which makes the difference between the intermediate price and the spot exchange rate negative. It is worth noting that in May 2013, when the US withdrew from the QE, the momentum of RMB appreciation was hindered. In order to stabilize the appreciation of the renminbi, the central bank kept the appreciation of the central parity unchanged, resulting in a sharp reduction in the spread between the middle price and the spot exchange rate. Therefore, we believe that in 2013, the RMB can still maintain a nearly 3% appreciation rate. In September, the increase in foreign exchange accounted for a larger scale, which is related to the guidelines of the central bank's central parity. Therefore, the depreciation in mid and late 2014 of 2 months will also have greater destructive effect on the unilateral appreciation of RMB stability in the former market, and it will also play a good role in the hot money of arbitrage arbitrage.

In recent years, with the continuous development and improvement of offshore RMB market, offshore RMB exchange rate has gradually become an important exchange rate price. Generally speaking, the offshore exchange rate is basically the same as the trend of the on shore exchange rate, but it will deviate at some time. The first deviation appeared at the beginning of the offshore exchange rate, as the market speculation pushed up the premium of the RMB exchange rate in the offshore market, leading to a short departure from the offshore exchange rate. The second time was in the three quarter of 2011, when the background was the outbreak of the European debt crisis, the global risk aversion was significantly improved, and the emerging markets experienced huge outflows of funds. At this time, the RMB exchange rate continued to appreciate. However, the offshore exchange rate appeared to depreciate. It was said that the offshore exchange rate was more sensitive to the inflow and outflow of funds. Since then, the RMB exchange rate has been basically consistent with the offshore exchange rate, and the exchange rate has been stable at around 0, only a slight deviation in some short periods. For example, from the end of 2012 to the beginning of 2013, the expectation of RMB depreciation is expected to be reversed.

FDI is the most stable component in the composition of foreign exchange, basically stable at the level of US $9 billion 500 million per month. The trade surplus shows a relatively strong seasonality. Its size is more related to the external demand brought by the world economic situation. Besides, other factors fluctuate greatly. We believe that the following factors will affect it.

First, the central bank is between banks. foreign exchange market Operation. As a manager of the foreign exchange market, the central bank will intervene in the foreign exchange market in order to maintain the stability of its currency value and ensure the orderly operation of the market. Therefore, the fluctuation of RMB exchange rate in the foreign exchange market under the intervention of the central bank will have two opposite effects on the liquidity of RMB exchange rate fluctuations caused by market behavior. If the central bank operates in the foreign exchange market to guide the appreciation of the renminbi, the central bank must sell a large amount of dollars and buy Renminbi in the interbank foreign exchange market, thus stimulating the demand for foreign exchange purchase between enterprises and banks, making foreign exchange capital decrease and liquidity becoming tense. But if the market behavior leads to the appreciation of the renminbi, its driving force is the large number of foreign exchange transactions between enterprises and banks in the counter market and interbank foreign exchange market, which will lead to the increase in foreign exchange earnings and objectively injecting liquidity.

The second is the effect of forward settlement and sale on foreign exchange settlement. There are three main types of transactions in the interbank foreign exchange market: one is the foreign exchange position brought by the sale and purchase of the Ping and sale agent, the other is the foreign exchange speculative trading of the self operated disk, and the three is the foreign exchange transaction conducted by the management of the comprehensive position of the foreign exchange settlement and sale of foreign exchange. If there is a big change in the balance of sale and sale of foreign exchange, although the inflow and outflow of foreign exchange capital will not be generated during the current period, it will cause the bank to change its current foreign exchange settlement and sale because of the management of the comprehensive position of the foreign exchange settlement and sale.

The third is the impact of foreign currency deposits and loans. For example, we often talk about internal loan, because the loan interest rates of many overseas countries, including the offshore RMB market in China's Hongkong, are lower than those in China. Therefore, internal loan has emerged as the times require. Enterprises can earn higher interest on deposit according to domestic interest rates, and at the same time pay a lower foreign currency loan interest rate to achieve arbitrage.

The fourth is the impact of RMB cross-border payment. If the cross-border expenditure of RMB is large, the surplus of foreign exchange settlement should be greater than the favorable balance of trade. If the cross-border income of RMB is large, the surplus of foreign exchange settlement should be less than the favorable balance of trade. Due to the lack of official data on cross border payments, we can only make projections based on historical experience. China is in the downstream of the industrial chain in the international division of labor, and the bargaining power of manufacturers is relatively poor. Therefore, in the context of the long-term appreciation of RMB in the past, domestic exporters still rely mainly on US dollar settlement, while domestic importers lack the power to use RMB payment. Therefore, the overall cross-border RMB payment has little impact on foreign exchange holdings.

In the light of our analysis framework, we look forward to the prospect of foreign exchange in the future. We believe that the downward trend is a foregone conclusion. Although the trade surplus may ease with the acceleration of economic recovery in developed countries such as the US, Europe, Japan and other developed countries, excluding foreign trade surplus and other items of FDI may not be optimistic.

First, the unilateral appreciation of the renminbi has been broken, and the fluctuation of RMB bilateral exchange rate will become the norm, which will have a negative impact on foreign exchange from several aspects. First of all, the enthusiasm of enterprises and banks to settle foreign exchange will be weakened, and the amount of long-term net settlement will also decline. Secondly, the risk of arbitrage of hot money will increase significantly. Before the devaluation of February this year, the RMB exchange rate within the day will only exceed 100 basis points at a very different time point. Since the end of February, the daily fluctuation of the RMB exchange rate has been normal at around 200. Therefore, the central bank has also liberalized the floating range of the RMB, allowing the larger fluctuation from the attitude.

Second, the economic recovery process of developed countries is good, and monetary policy is tightening gradually. At the end of 2013, the market was still debating whether or not the United States should reduce the size of QE. Now, the reduction of the size of the 10 billion debt purchase has become a consensus among investors. The focus of the US market has shifted to the question of when to raise interest rates. On the other hand, New Zealand has become the first country to raise interest rates after the subprime crisis. There are also interest rate expectations in the United Kingdom, Canada and Northern Europe. The gradual tightening of developed monetary policy will reduce the spread between China and abroad, reducing the power of institutions to seek the combination of local assets and foreign exchange liabilities, reducing foreign currency loans and thus reducing foreign exchange reserves. At the same time, with the return of capital to developed countries, the yield of overseas assets has also increased. Especially, the interest rate hike anticipates that the short end interest rates of many developed countries begin to rise, leading to the upward trend of foreign currency financial returns, further reducing the attraction of hot money to China's arbitrage arbitrage.

To sum up, we believe that the recovery rate of emerging markets is weaker than that of developed countries, and that monetary policy of developed countries will gradually tighten, and that the return of capital from emerging markets to the world economic environment of developed markets is the core factor for the decline of foreign exchange holdings. The central bank's series of operations since February, including the public market to guide the depreciation of the RMB and the expansion of the floating rate of the RMB exchange rate, have contributed to the acceleration of the heart rate. Therefore, the increase in foreign exchange earnings will decrease in a certain range in the future, which may be about 1 trillion lower than that of last year. From the perspective of the reduction of external liquidity, the central bank is required to increase the release of the open market to supplement liquidity. If the central bank still maintains a no easy attitude at present, the interbank market liquidity will maintain a tight balance in the two quarter, and the relative easing of the first quarter will be gone forever.