RMB Exchange Rate Changed Last Year'S Depreciation Trend. Exchange Rate Accusation Is Full Of Suspicion.

Recently, Trump again accused the RMB exchange rate of China, calling China a "currency manipulation champion". It shows that Trump did not give up the possibility of a trade war with China after a short show of China.

However, this attitude is contrary to the new finance minister, Stephen. He said in a recent media interview that there was no need to rush China as a "currency manipulator" and mentioned that he had had a "great conversation" with Chinese financial officials.

Looking ahead, in my view, there is little room for depreciation of the RMB against the US dollar in 2017. It is estimated that the exchange rate will be 6.9 against the US dollar at the end of June and the interval will be between 6.8 and 7.

If there is no large-scale trade war between China and the United States, the RMB may weaken slightly to 7.1 against the US dollar at the end of the year, and the range will fluctuate between 6.9-7.3.

This year, the RMB exchange rate has changed from last year's devaluation trend to stability, mainly due to four factors:

First, the improvement of China's economic growth.

Since the three quarter of last year, China's economy has shown a positive trend. The micro data of industrial profits, electricity generation and freight volume rebounded sharply. The sales volume of excavators increased by more than 70% over the 4 month period, and the sales growth in Jiangsu and Sichuan may exceed 100% in February.

In January, the medium and long term loans of non-financial enterprises increased by 1 trillion and 520 billion yuan, accounting for 74% of all new loans in the month, reaching a new high in the past two years. It also indicates an increase in production activities, especially the rebound in investment brought about by the accelerated landing of the PPP project.

After the upgrading of the property market in the second tier cities, the spillover effect of the big cities has led to the rise of real estate sales in the surrounding three or four tier cities; the overseas market has been warmer than expected, and exports have been strong in January; and with the expected economic growth, Hong Kong stocks rose nearly 9% in the year to date, indicating that investors' optimism has increased.

At the same time, this year coincides with the "Nineteen big". Considering that the political cycle has always been closely related to the economic cycle, it is expected that steady growth is still an important consideration for policy makers, and that supporting infrastructure investment and a more proactive fiscal policy can be expected.

Second, capital outflow control measures will take effect.

At the end of last year, the "Trump market" exacerbated the rise of the US dollar and the strong expectation of RMB depreciation. The central bank not only stepped up the intensity of intervention, but also increased the cost of shorting the renminbi in the offshore market. At the same time, it took more administrative measures to limit capital outflow, including: tightened reporting conditions for individual purchase of foreign exchange policy by the safe, encouraging the sale of foreign exchange purchase by state-owned enterprises, limiting individual overseas accounts and increasing the norm for overseas investment.

Thanks to the above measures, China's foreign exchange reserves fell by only 12 billion 300 million dollars a month, 1/8 of the same period last year.

Third, the interest rate cycle is open, which is good for resisting capital outflow.

Before and after the Spring Festival, the Central Bank of China increased the short and medium term interest rates such as MLF, OMO and SLF, which affected the short end and long end interest rates of the bond market, which rose at the end of last year. This is in line with the general tone set by the economic working conference last 2017 for monetary policy.

In my opinion, the central bank's operation is mainly due to the factors such as restraining the real estate bubble, preventing the massive outflow of funds and increasing the inflationary pressure.

A moderately tight monetary policy will also help ease the pressure on capital outflow and the depreciation of the renminbi.

Fourth, the strength of the US dollar may not last.

In history, the US dollar may not necessarily be stronger after the Fed's interest rate cycle opens.

For example, the Fed raised interest rates at the end of 2015 and the end of 2016, but the US dollar trend did not follow the previous upward trend but turned weaker.

This year,

Down, the lowest time fell below 100, and now it is around 101, which is 2.1% lower than that of 103.3.

Looking ahead, the optimistic anticipation of overdraft in the early stage, and the strong US dollar is not conducive to the implementation of Trump's new deal. I expect that the US dollar trend in the first half of this year will not be strong enough to slow down the pressure of RMB depreciation.

In summary, I believe that the first half of this year

Continuation of the strong growth momentum at the end of the year, the overall downside risk is not large.

At the same time, in the face of overseas uncertainties, policy makers to stabilize the exchange rate and guard against large-scale capital outflows, continue to take part of capital controls, or even sacrifice some monetary policy independence policy mentality is clear, and after Trump took office, the "three fires" were not favorable, the accident was unfavourable, and the US dollar index also declined slightly.

Against this background, the author expects that the yuan will stabilize against the US dollar in the first half of this year, with a median value of 6.9.

Looking ahead in the second half of this year, the uncertainty in the RMB exchange rate trend has increased, mainly due to the fact that Sino US trade relations can not be shocked, how China's deleveraging process is, and so on.

In particular, under the circumstances that the current Sino US trade war may not be ruled out, the United States confirms that the accusation of manipulation of the RMB exchange rate is starting.

Therefore, it is very important for China to grasp the adjustment of exchange rate policy.

In the short run, it is necessary to maintain a stable exchange rate and avoid the depreciation of the renminbi. It can be done with static braking instead of Trump's accusation against the RMB exchange rate. If the US side decides that the RMB exchange rate is manipulated and it takes harsh trade sanctions against China, it should be prepared to allow the exchange rate to float freely.

In this way, free floating is likely to mean a significant devaluation.

First move is controlled by others, while the latter will increase the counterweight, and the deterrent effect is very different.

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