The Spread Of RMB Worries Is Fierce.

In 2016, the economic situation was not optimistic, which overlapped the Fed's interest rate cycle, and the strong expectations of the depreciation were all in the foreign exchange market.

However, the sharp fall in the RMB price against the US dollar in the new year is still beyond many people's expectation.

"Everyone was stunned."

In January 14th, Qi Feng recalled the trading experience of the first few trading days in 2016.

He is a foreign exchange trader in a big Chinese bank in Shanghai.

From January 4th to January 15th, the RMB exchange market experienced ten roller trading days.

On the first four trading days of the new year, the RMB on the coast dropped nearly 1000 basis points against the US dollar and depreciated more than 1.5%.

Hongkong's offshore market fell more sharply, falling 2000 basis points in four days, and depreciated by 3%.

The expectation of devaluation is unprecedented and the market is in a panic. Many ordinary people are wondering: should we convert the renminbi into US dollars?

In the meantime, the price difference between the offshore and offshore markets exceeded 1000 basis points, and arbitrage funds gradually revealed the nature of bloodthirsty.

On the other side of the globe, the Wall Street in the United States is also disturbed by the huge fluctuation of the renminbi.

"January is a month dominated by the traditional bull market of the US stock market, but it plummeted on the first day of the year, as if it had been a sore stick in the new year.

Everyone wants to know what is going on in China and why the renminbi and the stock market are falling. "

On that day, a fund manager at Wall Street felt that there was almost no chance of breathing.

After the US stock market closed, he also had to go through an overseas call with his Chinese partners to discuss the second day's countermeasures. "But at that time, no one seemed to be able to tell exactly what happened, and the information was very confusing."

With the slowdown in China, the US interest rate raising and the depreciation of the yuan in the early stage of the yuan, almost all market participants expect the renminbi to depreciate in 2016.

At this point, the strong intervention of the central bank has become a decisive factor in reversing the consensus of the market.

The ten day of the "fight" ended in the narrowing of the price difference between the RMB in the offshore market and the offshore market.

For traders, there are no more pleasurable things than fluctuations; for import and export enterprises, the differentiation between ice and fire is inevitable.

"The first day of the new year, the US dollar is RMB.

It has been raised (equivalent to lowering the RMB exchange rate).

This gives everyone a signal that the central bank is more tolerant of the depreciation of the renminbi.

Qi Feng said.

In January 4th, the offshore renminbi fell 290 basis points against the dollar and depreciated by 0.45%.

At present, China has a managed floating exchange rate system. The central bank will issue a central price through the China foreign exchange trading center before opening. The fluctuation rate of daily exchange rate should not exceed 2% of the middle price.

In August 2015, the central bank has made the market price adjustment mechanism of the formation of the intermediate price, known as the 811 foreign exchange reform.

But the middle price is still interpreted by the market as a weathervane of the central bank's exchange rate policy.

Many market participants are speculating on the intentions of the central bank, and for a short time, there are four short sellers.

In January 6th, the offshore RMB exchange rate continued to decline by 415 basis points, with a depreciation of 0.71%.

A trader in Wall Street felt the same day, "it seems that the middle price was wrong."

Offshore CNH dropped 200 points in a few seconds, down from 6.6365 before the mid price announcement to 6.6570.

Later, the market speculated that the price cut was due to the fact that the non farm employment announced by the United States on Friday may be much better than expected, and that the US dollar has surged to near 99.404.

A US stock trader said that although he did not have CNH exposure directly, he saw the sudden drop in CNH on that day, and a little bit of Switzerland's feeling of decoupling from the euro in early 2015. So he began to realize that the fluctuation of the RMB against foreign markets was far from over. "I started watching the A shares every night. Before, we always looked at the Nikkei index, and now we are concerned about China's stock market.

What is confusing is that the PBC seems to have an increased tolerance for the depreciation of the renminbi. "

After the closing of the US stock market, Asia's stock market has become a new job that many American traders have to face after the start of this year.

In January 7th, the central price dropped by another 145 basis points again.

At this time, many market participants have noticed the change in the pricing of the intermediate price.

Xie Yaxuan, director of macroeconomic research at China Merchants Securities, said that the central bank is trying to make the exchange rate more responsive to the real demand and supply of the market, and the tolerance for exchange rate fluctuations is rising.

When offshore RMB and onshore RMB

After expanding to 2000 basic points, the people's Bank of China began to fight back.

In January 8th, the central bank made a statement through a commentator's article.

The central bank is strengthening the flexibility of the RMB exchange rate and has the ability to maintain the basic stability of the RMB exchange rate at a reasonable and balanced level, the paper said.

At the same time, the central bank launched.

In January 8th, many traders said that Chinese banks were selling big US dollars in offshore markets to boost the yuan.

In addition to directly supporting the offshore market through large state-owned banks.

In addition, Hongkong's interbank lending rate (Shibor) soared, making short selling of renminbi more expensive.

With overseas investors sighing, such a thunderstorm will not only punish the short sellers but also hurt the bulls, which may kill the offshore market of the renminbi.

In the evening of January 11th, offshore renminbi overnight lending rate jumped from a single digit to a record 66.8%.

Along with cross-border arbitrage and central bank intervention, Hongkong's liquidity on the market is very tight.

The cost of short selling has increased sharply, and the exchange rate has risen sharply. The RMB exchange rate has risen by more than 1000 basis points in the two trading days of the offshore market.

There are also market analysts who believe that the central bank is actively guiding the devaluation of the renminbi to increase the competitiveness of export enterprises and support the economy.

Liang Hong, chief economist of CICC, said at this time that "RMB exchange rate flexibility" has become an important source of new uncertainty.

She believes that effective communication on policy stance and resolute measures to maintain this position will help reduce the "herd" effect in the market volatility.