Exchange Rate Special Topic: RMB Depreciation Will Not Be Out Of Bounds

Statistics show that since last November, the renminbi's spot exchange rate against the US dollar has depreciated by more than 1300 basis points, or 2.2%.

The analysis shows that due to the strong growth of the US economy and the slowing down of China's economic development, the RMB will maintain a downward trend against the US dollar. The short-term rise of the RMB mainly reflects the two-way fluctuation characteristics of the market.

Looking forward to the trend of RMB exchange rate in 2015, experts predict that the RMB exchange rate will not show a significant appreciation or depreciation trend.

In the short term, the RMB exchange rate trend is uncertain, or there will be frequent two-way fluctuations.

In the medium to long term, the probability of moderate devaluation of the RMB is greater.

Shanghai resident Qiu Yihua (pseudonym) and her husband have retired and their daughter has settled in the United States. The couple plan to visit relatives in the United States before the Spring Festival this year.

In mid January, Qiu Yihua was ready to exchange money, but unfortunately he had a bad cold and dragging on until he went to the bank in January 27th.

To Qiu Yihua's surprise, in the short half a month, the depreciation rate of RMB was not small.

"Around January 14th, it needed 618.41 yuan for 100 dollars and 623.45 yuan in January 27th.

If I change twenty thousand dollars in cash, it will cost more than 1000 yuan.

Qiu Yihua told the International Financial Daily reporter.

A manager of a bank on the South Spring Road, Pudong New Area, Shanghai, told the international finance Daily: "the clients who recently exchanged money for our bank are indeed more than ever. Customers expect that the RMB exchange rate will continue to depreciate against the US dollar. Customers who have gone to the United States to visit relatives and study abroad will begin to change their dollars in advance."

And at the bank's business outlets, reporters also saw Ms. Li, who came to ask the exchange rate.

Ms. Lee asked the lobby manager what the currency was depreciating in the near future. When she heard the depreciation of the euro and Australian dollar was bigger, she told reporters: "our family likes to travel, and will travel abroad every year. In the past two years, the fluctuation of foreign exchange market is relatively large. My family and I choose what national currency to depreciate to the RMB, then go to which country, the yen depreciated greatly last year, so we went to Japan."

The Australian dollar's exchange rate reached its lowest level since July 2009 on January, breaking the 5 mark, which dropped to 1 Australian dollars in January 27th and changed to 4.9322 yuan. In this regard, Ms. Li said excitedly, "this year, I plan to take my parents to Australia for 5 years' travel."

Ms. Li also told reporters about the tricks of outbound travel: "if we go to a country where currencies are rising, we should try not to pay cash with credit cards, but we should try to cash in with the currencies that are depreciating, and use less cash so that when the exchange rate accelerates depreciation, we may have less repayment."

In addition to tourism, visiting relatives and other activities are affected, the financial structure of bank customers is also changing.

Influenced by the Australian dollar's devaluation to the RMB, the Australian financial products have been fading away from the bank's customers' vision.

The above phenomenon is just the tip of the iceberg that affects the daily life of exchange rate fluctuations. However, more and more people feel the fluctuation of exchange rate deeply.

Market participants pointed out that the RMB exchange rate volatility will continue this year.

In January 28th, the central parity of the RMB against the US dollar continued to rise to 6.1282, an increase of 82 basis points from 6.1364 in January 27th, and a second consecutive trading day appreciation, the largest one-day appreciation in the past one and a half months.

On the spot price, the spot exchange rate of RMB against the US dollar in the inter-bank foreign exchange market rose by 100 percent in January 27th. In January 28th, it continued to open 6.2400 higher and appreciated 35 basis points, but the intraday concussion fell to a low level, and the lowest value in the intraday market dropped to 6.2481, which was only 27 points less than the 6.2508 of the day's limit price, which was 1.96% lower than the middle price discount rate.

In January 29th, the yuan opened 51 basis points on a spot basis, and fell to 6.25 against the US dollar, the lowest to 6.2542, which was 1.96% higher than the middle price of the day, and once again approached the "2% red line".

This is already the three time that the renminbi has been close to the limit in 4 days.

According to the central bank's regulation, since March 17, 2014, the floating rate of RMB to us dollar trading in inter-bank spot foreign exchange market has expanded from 1% to 2%, that is, the trading price of RMB against the US dollar in the interbank spot foreign exchange market can fluctuate within the range of 2% of the daily price of the RMB against the US dollar released on the day of the China foreign exchange trading center.

In January 28th, the depreciation rate of RMB against the US dollar was 1.96%, which means that the spot exchange rate of RMB is approaching the limit.

Moreover, this is the second time the RMB spot rate is approaching the limit.

Before January 26th,

There were two big drops.

On that day, the depreciation rate of RMB against the US dollar was over 250 basis points, and the rate of decline also reached 1.94%, approaching 2% of the "limit line".

However, unlike the second close to the limit, in January 26th, the central parity of RMB against the US dollar was 6.1384, down 42 basis points from the previous trading day.

Societe Generale Securities believes that the depreciation of the intermediate price is a "stress test" and confirms that "the pressure of outflow of funds is greater than the pressure of inflow".

For bank customers and investors, what they most want to know is whether the depreciation of RMB will become more violent.

Looking back on the reasons for the depreciation of the renminbi, Jiang Shu, senior analyst at Xingye Bank head office, said that the phased devaluation of the RMB was mainly led by the US economic recovery and the rest of the world economy. The European economy is still weak, and the central bank's monetary policy is further differentiated.

In January 28th, the Fed released the latest interest rate resolution. The US economy is growing at a "solid" pace, and employment is also growing strongly, and the main interest rate is maintained at 0 to 0.25% levels.

In December 2014, the Fed indicated that it would "patiently" raise interest rates.

This statement means that at least two of its subsequent meetings of the Federal Open Market Committee are unlikely to raise interest rates.

In January 28th, the Federal Reserve reiterated this guideline.

This seems to indicate that when the meeting is held in March and April, the Federal Reserve will not consider raising interest rates, so that interest rate rises can only come true in June.

Jiang predicted that the US dollar index will definitely rise to 97 to 98 in the first, second quarter of 2015. If the Federal Reserve continues to postpone the decision of raising interest rates, the US dollar index will fall back to 92 to 93 in the third quarter. With the substantial start of the interest rate increase at the end of the year, the US dollar index will stabilize at 95 in the fourth quarter.

However, it is certain that the United States is taking the lead in normalizing the direction of quantitative easing.

In 2015, more central banks were still "letting water" and loose currencies of varying ranges.

In January 22nd, the European Central Bank announced that it would expand the scale of asset purchases, and purchase 60 billion euros a month from March, until September 2016 or the euro area inflation rate rose to 2%, with a total scale of nearly 1 trillion and 140 billion euros.

It also means that there will be more than one trillion euros in the market.

With such a huge easing plan landing, the euro fell to 1.15 after the "hundred strong earthquake" against the dollar. For the first time since 2003, the dollar has risen more than 6% against the euro since 2015, even though the RMB exchange rate with the euro has fallen to 7 below the euro.

Pan Gongsheng, vice governor of the people's Bank of China, said at the regular briefing of the State Council policy held by the new office in January 23rd that the new quantitative easing policy of the European Central Bank plus the trend of normalization of quantitative easing policy in the US will further push the US dollar exchange rate to strengthen, which may bring downward pressure on the RMB to the US dollar exchange rate.

In addition to the ECB, only India, Japan, Singapore and other countries in Asia have further stepped towards easing.

In January 28th, the HKMA lowered the slope of the monetary policy zone and relaxed the policy unexpectedly.

Affected by the news, Singapore's Asian stock market fell 1%, the biggest decline in 3 and a half years.

The Singapore monetary authority has said that it will maintain a moderate and gradual appreciation of the policy exchange range, but it will lower the slope of the monetary policy zone and join the global "water drain" to fight deflation risk and support the economy.

In January 21st, the Bank of Japan maintained a large-scale monetary stimulus policy and continued to expand the scale of the basic currency by buying bonds and risky assets at a rate of 80 trillion yen (US $676 billion) per year.

At the same time, the central bank has extended the two loan schemes originally due in March for one year, allowing banks not to open accounts in the central bank to participate in the existing loan schemes.

The two plans are designed to encourage Japanese banks to increase lending.

In January 15th, the Central Bank of India announced that it would cut the benchmark interest rate by 25 basis points to 7.75%.

This is the first time that the bank has cut interest rates in the past two years. The Bank of America expects that the Central Bank of India will cut interest rates again by 50 basis points between April and September this year.

Jiang Shu pointed out that the quantitative easing of central banks, especially the huge easing in Europe and Japan, pushed up the US dollar exchange rate.

More importantly, the recovery of the US economy and the trend of recovery will continue, supporting the strong dollar. The whole financial market will focus on the US economic recovery and the strong dollar theme in the next two or three years.

Peter Hooper, chief economist at Deutsche Bank, believes that for the next time, the theme of the foreign exchange market will continue to be stronger, and the US dollar rally will probably continue for 2 to 3 years.

Jiang Shu stressed that the strengthening of the US dollar will impact the non US currencies, and the Renminbi should not be an exception. However, the RMB is more than the deficit. The depreciation rate is much smaller than the Japanese yen and the euro. It is estimated that the RMB exchange rate against the US dollar will depreciate between 4% and 5% in the period of strong US dollar.

The possibility of a significant depreciation of the renminbi is small, but the future volatility may be strengthened.