Can The Situation Of RMB Exchange Rate Stability Continue?

Recently, the UK's referendum is close to Europe, and the impact of global financial risks is rising. The US dollar rose slightly again after several days of non-agricultural data released in early June.

Against this background, the offshore dollar index for offshore markets fell during the Dragon Boat Festival, a 4 month low.

Just before May, as the market expected the fed to raise interest rates in June, the yuan also depreciated 1.53% against the US dollar in a single month, the biggest monthly decline since last year's reform.

There is no doubt that the choice of the Fed's rate hike path and the risk point of Britain's withdrawal from Europe are still important factors affecting the future trend of the RMB exchange rate.

From the Fed's interest rate path choice, since May this year, the Fed officials have made statements, and the April fed meeting minutes even said that "most of the officials inside the Federal Reserve agree that if the economic situation allows the rate hike in June to be possible", the market will suddenly increase the expectation of the US Federal Reserve raising interest rate in June, and the US dollar index will also strengthen correspondingly.

Ensuring exchange rate stability this year is still a pressing matter of the moment.

After all, avoiding the expectation of RMB devaluation will help RMB to enhance its international status after its accession to the SDR. At the same time, it also creates conditions for accelerating domestic supply side reform and economic stabilization in order to prevent financial turbulence.

However, in May, the number of non farm employment in the United States increased by only 38 thousand people, the lowest since September 2010, which not only made it impossible to raise interest rates in June, but even if the situation did not improve, the July increase in the probability of a larger probability would be postponed to September.

In fact, the current US economic data are mixed, the profits of enterprises are decreasing gradually, the manufacturing situation is not optimistic, the non oil trade deficit continues to increase, and manufacturing and exports can not afford to be too strong.

Although the employment data improved earlier, the unemployment rate dropped to 4.7% lows, but the labor force participation rate decreased.

The recovery is mainly due to real estate and finance, and obviously depends on loose monetary policy, which may not be able to withstand premature interest rate hikes.

In addition, in my view, in the short term, the US dollar rebound has also been overdrawn to a certain extent.

The rate hike is expected, once the Federal Reserve raises interest rates to land, the US dollar also has the very big probability to weaken, but is not strong.

In fact, by combing the historical data of the Federal Reserve raising interest rates over the years, the author found that after the 7 rate hike cycles began in 70s, the US dollar showed the five weakness. Although there were two strong gains, the US economy fell into recession after a year, and the US dollar plummeted.

Since the US economy can not afford to raise interest rates too fast, the appreciation of the US dollar in May reflects the rate hike expectations to some extent. Therefore, the author expects that raising interest rates in September will not necessarily lead to a stronger US dollar.

At the same time,

For example, the referendum in Britain will also affect the US dollar and RMB movements.

Despite recent investigations by the independent newspaper, 2000 respondents supported Britain's withdrawal from the EU, or even higher than those who stayed in Europe.

However, the United Kingdom has always taken the view that, taking into account the pragmatic approach of the British, the United Kingdom is most likely to make sensible choices in the euro area before the Scotland referendum.

But there is no doubt that the current market performance has not made enough preparations for Europe. If the "black swan" incident occurs, the greater financial turmoil will continue.

From the above point of view, the author expects that the US dollar index will be a big probability event between 90-100 this year, and the possibility of breaking through 100 is unlikely.

If, as I have expected, this is good for the RMB exchange rate, which means that the pressure on the renminbi to depreciate sharply against the US dollar will be reduced, the existing strategy should be maintained, and the RMB exchange rate should be stabilized. When the US dollar depreciates, it will be a safe choice to follow the US dollar against a basket of currencies and appropriately release the pressure of excessive appreciation on a basket of currencies in the early stage.

Faced with the pressure of capital outflow caused by the sharp depreciation of the RMB, the policy makers did not adopt a one-off devaluation strategy. By stabilizing the RMB exchange rate and even adopting a certain degree of capital control, the policy was able to reverse expectations, and the situation of foreign exchange reserves dropping too fast has also been changed.

Although foreign exchange reserves declined by 27 billion 900 million US dollars in May, the first decline in 3 months, but the main reason is that the valuation of non US dollar assets in the foreign reserves has been reduced. Excluding this effect, the actual outflow in May may be less than US $20 billion.

Furthermore, a stable RMB exchange rate is also needed for stabilizing the economy and promoting the supply side reform.

On the one hand, the current China's real economy is difficult to run. In May, the economic data were not optimistic. Industrial production and consumption remained low. Investment data once pulled the economy stable, and the growth rate of private investment dropped to 3.9%.

Real estate investment and infrastructure investment have been the main force to stabilize the economy, but in May, new investment and real estate investment data both inflection points.

On the other hand, financial risks should not be ignored.

Earlier bond market defaults frequently increased investor risk aversion.

When financial risks increase and the pressure of economic stabilization is bigger, it is very important to avoid the risk conduction of stock market, property market, foreign exchange market and bond market this year.

At the same time, considering the many contradictions between the current financial and real economy, the root lies in structural problems. We need to accelerate the reform of state-owned enterprises, fiscal reform, financial reform, household registration reform and other supply side reform measures, and stabilize the external environment, especially to prevent fluctuations in the foreign exchange market. This is also the need to accelerate the supply side reform.

In addition, taking into account the September G20 summit in Hangzhou and the good opportunity for RMB to formally join the SDR in October, under this background, encouraging foreign capital to flow into domestic bonds and stock markets in the short term and maintaining exchange rate stability is still a dominant strategy.

From the above point of view, it is still imperative to ensure exchange rate stability this year.

After all, avoiding the expectation of RMB devaluation will help RMB to enhance its international status after its accession to the SDR. At the same time, it also creates conditions for accelerating domestic supply side reform and economic stabilization in order to prevent financial turbulence.