RMB Exchange Rate: A Prelude To The Depreciation Cycle Or A More Marketable Performance

Exchange rate plummeted

In the international market, the US economic data continued to improve, leading to the recent rise in the US dollar and the pressure of RMB adjustment.

In the domestic market, with the downward pressure on the economy and the interest rate cut by the central bank, the yuan has begun to depreciate slightly against the US dollar since the end of November.

The latest foreign trade data released in November show that China's foreign trade has little chance of achieving 7.5% growth this year. The slowdown in foreign trade will weaken the willingness of foreign exchange settlement and increase the willingness to purchase foreign exchange, and this trend force can hardly be reversed in the short term.

In December 9th, the yuan dropped sharply against the US dollar in the spot market and fell below 6.2.

After hitting 6.2, the stability of the central bank appeared, and then the renminbi decreased.

At the time of issue, the spot exchange rate of RMB against the US dollar hovered in the 6.18~6.20 range.

The RMB spot exchange rate trend is quite volatile, and the middle price is rising all the way, continuing to refresh the high level in nine months, highlighting the central bank's intention to promote the depreciation of the RMB.

Liu Dongliang, a senior analyst at China Merchants Bank's financial market, judged that the RMB did not open the depreciation market. Its judgment basis mainly includes four aspects: first, the 6.2 pass can be regarded as a watershed. At present, the RMB against the US dollar has not effectively fallen through this critical support, so it can not be considered that the depreciation cycle of RMB has been opened.

Second, although the central bank gradually withdraws from the foreign exchange market and intervenes normally, it will not let the extreme market spread, and the sharp fall in the RMB market may come to an end.

Third, after the sharp fall of the RMB, some of the cross-border arbitrage funds may be eager to close their positions or lock up their exposure, which will provide some support for the RMB exchange rate.

Fourthly, the central economic work conference held recently pointed out that "China's export competitive advantage still exists", basically eliminating the possibility of stimulating exports by relying heavily on depreciation.

The meeting also pointed out that the implementation of "one way, one side" and "high level introduction" and "going out on a large scale" should mean the continuation of large-scale external investment and the need for a relatively stable exchange rate environment, further reducing the devaluation of the RMB.

Next year will be significantly enlarged?

Due to the gradual upward trend of RMB in the past year, the domestic and foreign institutions are divided on the forecast of RMB exchange rate next year.

Liu Dongliang predicted that the yuan will remain volatile after this sharp fall, and the fluctuation of the RMB exchange rate next year will probably extend to 6.05~6.26.

Wang Tao, chief economist of UBS Securities, predicted that the RMB exchange rate against the US dollar would be reduced to around 6.35 at the end of 2015.

Wen Bin, principal researcher of Minsheng Bank, told reporters that the RMB exchange rate will remain stable next year. The probability of significant appreciation and depreciation is not large. The two-way fluctuation is normal. The central bank will also guide the RMB exchange rate reasonably according to the macroeconomic and financial situation.

According to the analysis of the central economic work conference of the vice president of Goldman Sachs, China's vice president of private wealth management, the conference will focus on "maintaining stable economic growth" as a top priority, fine-tuning the keynote of monetary and fiscal policy, putting forward "positive fiscal policy to be vigorous", and "monetary policy should pay more attention to tightness and moderation", indicating that next year's policy will continue to relax, which may cause devaluation pressure on the RMB exchange rate.

At that time, the intervention of the central bank may occur, thus partially canceling the effect of monetary easing.

The mainstream view of the market is that the volatility of the RMB exchange rate will significantly enlarge next year, which will increase the difficulty of the market's anticipation of the exchange rate and stimulate the demand for hedging and trading products.

It's the best choice to give it to the market

The fluctuation of exchange rate has increased significantly, and the division of institutions has been divided. This shows that the general outline of the current equilibrium interval of RMB exchange rate is taking shape, and it provides more room for the central bank to withdraw from the normal intervention of the foreign exchange market.

Experts suggest that it is the best choice to give the decision of exchange rate to the market. Even if there are some extreme pactions, the monetary authority can control the rhythm appropriately and avoid changing the direction of the market as far as possible.

Song Yu, a senior Chinese economist at Goldman Sachs and Gao Hua Securities, told reporters: "it is not sustainable to simply rely on appreciation to enhance the attractiveness of the renminbi.

When the market realizes that the RMB exchange rate formation mechanism is more pparent and more market-oriented, investors will naturally be more willing to hold renminbi, which is not necessarily related to currency depreciation or appreciation.

With the normal intervention of the central bank gradually withdrawing from the foreign exchange market, the State Administration of foreign exchange has announced that it will relax the interbank foreign exchange market entry next year, cancel the prior qualification permit, and allow qualified money brokerage company to carry out related business in the interbank foreign exchange market.

This means that more institutions will enter the interbank market and bring more yuan trading style, thereby increasing the fluctuation of the RMB exchange rate.

Xie Yaxuan, director of macro research at China Merchants Securities Research and development center, said that different institutions based on different purposes and styles will make foreign exchange prices reflect the expectations of more market organizations, and help the foreign exchange market to better realize the price discovery function of foreign exchange pactions.

Of course, this also means that the central bank will increase the difficulty of foreign exchange intervention through trading, and the role of the central bank in reflecting the central bank's policy intentions will become more prominent.