A New Appreciation Of RMB Or Near Inflection Point Is Just Around The Corner.

Asset Management Co AllianceBernstein (AB) believes that the RMB against the dollar is now likely to have reached the point of inflection, and there may be a surge in the Renminbi before the end of the year.

AB Briscoe Asia Pacific fixed income director Hayden Briscoe wrote on her blog:

Investors have been worried about the future trend of RMB after a sharp depreciation of the yuan.

At present, the renminbi has reached a crucial intersection, and it is likely to rebound in the future.

At the beginning of the year, the central bank's policy to suppress the RMB exchange rate shocked investors. They thought the renminbi would continue to strengthen in the long run.

In fact, the RMB has strengthened against the US dollar for nine consecutive years, which is consistent with the Chinese government's determination to internationalize the RMB.

For other more detailed observers, the fluctuation of the renminbi is not surprising, or is not necessarily inconsistent with China's policies.

The Central Bank of China carried out similar moves in mid 2012, when the central bank lowered the daily parity of RMB against the US dollar.

The renminbi entered a 6 month period of weakness.

During this period, the central bank expanded the daily floating range of RMB against the US dollar.

Finally, the RMB will return to the appreciation channel.

This year's story is based on the same script.

In January, the central bank lowered the central parity of RMB against the US dollar and weakened the RMB. In March, it announced that the fluctuation range of RMB against the US dollar would be expanded from +/-1% to + /-2%.

The renminbi has been weakened by guidelines, relieving the market from unilaterally holding down the threat of appreciation and widening the trading range of RMB.

We think this is consistent with the policy of making the RMB exchange rate go to market.

At the same time, the behavior of the Central Bank of China does not necessarily mean that the policy of "managed appreciation" will end.

In terms of monetary fundamentals, the renminbi has not been overvalued or even been priced at a fair price.

China's trade surplus reached a record $47 billion in July and a record of $49 billion in August.

China's foreign exchange reserves exceeded 4 trillion US dollars and grew by more than 500% since 2005.

During this period, the yuan appreciated by only about 30%.

The mismatch between the RMB exchange rate and its fundamentals makes the central bank control the hot money and curb the domestic credit bubble, but it also causes the renminbi to be greatly underestimated.

The countermeasure is to appreciate RMB every year, and from any intermediate price index of 12 months rolling, the renminbi has not depreciated.

So from this point of view, China can honestly tell the global economic partners that the RMB is still on the track of appreciation.

From this perspective, we believe that the depreciation of the renminbi this year is limited.

The renminbi is likely to recover rather than weaken further.

If investors believe that China has not changed its monetary policy currency because there is evidence that China does not change its currency, then the RMB will be rolling in 12 ways.

It will be flat or upward.

If this is the case,

The renminbi is close to last year's level. According to the trend of last year, the central parity of RMB may be strong and reverse.

This will allow the RMB to continue to appreciate steadily for 12 months, and allow the central bank to maintain a positive monetary policy unchanged.

In other words, we believe that the central bank's policy of maintaining the trend of RMB appreciation is likely to result in a rising trend of RMB at the end of the year.