False Start? The RMB Exchange Rate Has Dropped Sharply.

After a jump of more than 1000 basis points last week, the biggest weekly gain since 2005, the RMB exchange rate against the US dollar began to show "fatigue".

As at 19 hours in January 14th, the RMB exchange rate against the US dollar in the onshore market was around 6.7682. The intraday hit the highest 6.7326 since July last year, but the tide of profit making has brought the RMB exchange rate to a higher level, which has fallen by more than 300 basis points.

"This means that the start up effect starts to ebb."

Morgan chase global market strategist Nikolaos Panigirtzoglou told reporters analysis.

The so-called "false start" effect is that since last week, many institutional investors and banks took advantage of the easing of Sino US trade frictions, and directly included the Fed's interest rate increase in the year, and the US dollar index fell by 5%.

But the move made the RMB exchange rate increase (about 1.8%) over the past 5 days far more than the US dollar decline (about 1.05%), triggering many hedge funds to sell short arbitrage.

In his view, the high tide of short selling of hedge funds has not changed the enthusiasm of the current market bullish RMB exchange rate.

Zach Pandl, a Goldman Sachs analyst, released the latest research report, which raised the expectations of the balanced valuation of the RMB against the US dollar in the next 3 months, 6 months and 12 months to 6.80, 6.80 and 6.70 respectively. The previous expectations were 6.95, 7.10 and 6.90.

"In fact, in addition to some quantitative funds and event driven hedge funds, the majority of institutional investors are still inclined to hold long-term positions in the renminbi," he said.

An American hedge fund manager revealed.

The reason is that these organizations believe that the economic development cycle of China and the United States is undergoing major changes. At the same time, when the US economy tends to grow negatively, China's economy is going to rebound with the positive fiscal policy and loose monetary policy, which will make the RMB exchange rate larger in the future and at the same time be able to maintain steady fluctuations in a reasonable and reasonable range.

Reporters learned that, in the early morning of 14, the RMB exchange rate rose to the highest level of 6.7326 since last July, mainly due to the emergence of corporate settlement.

"A lot of enterprises who missed the 6.8-6.9 settlement of foreign exchange are worried that the RMB exchange rate will further rise, resulting in the expansion of exchange settlement losses. Therefore, we have taken measures to settle foreign exchange in the morning of the 14 day, pushing the RMB exchange rate to continue to rise."

A Hongkong bank foreign exchange trader disclosed to the twenty-first Century business reporter.

However, when the RMB exchange rate reached 6.7326 in the new day, the whole buying power seemed to be hard to maintain.

The reason is that many banks and institutional investors realized that the rise in the RMB exchange rate in the early morning of Monday was not only supported by the weakening of the US dollar, but also the RMB exchange rate gains over the past 5 days had outperformed the US dollar declines in the same period. On the contrary, the RMB has been overestimated. Therefore, many quantitative investment funds and event driven hedge funds have started clearing up the renminbi long positions to gain profits and exit, leading to a sharp fall in the RMB exchange rate.

In the meantime, the General Administration of Customs released the latest data, showing that China's foreign trade surplus last year was 351 billion 760 million US dollars, narrowing 16.2% compared to the same period last year, and also exerting a downward pressure on the RMB exchange rate.

The foreign exchange trader of the Hongkong bank thinks.

"It is important to note that the main strength of this participation in buying up renminbi is not only the settlement of enterprises, but also the banks and institutional investors who are actively buying up the Chinese and American trade frictions, and there are also a large number of international financial institutions that are ready to add renminbi assets."

Phil Flynn, a senior market analyst at Price financial group, told the twenty-first Century economic news reporter that at present, these large international financial institutions did not adopt the short-term arbitrage strategy of high dropping and low absorption. Instead, they continued to add renminbi bond stocks and increased their long positions in the RMB exchange rate, which created a good opportunity for the RMB exchange rate to rebound in the medium and long term.

The head of a large international information and management agency told the twenty-first Century economic news reporter that the reason why they added the renminbi exchange rate at the same time was the most important reason because they were optimistic that China's macro-economy would soon rebound.

"When the US economy grew strongly last year, China's economy bottomed out was not much concerned by the capital market.

But as the US economy tends to grow negatively, the investment safety and profitability of China's economic rebound has become an important reference for many asset management institutions to optimize asset allocation in 2019.

He pointed out.

In the industry view, despite the sharp rise in the RMB exchange rate at the beginning of the year, in the medium to long term, the progress of Sino US economic and trade consultations, the fundamental growth of China's economy and the fall in the pace of the Federal Reserve's rate hike and the US dollar index are still the biggest factors affecting the fluctuation and direction of the RMB exchange rate.

The US hedge fund manager pointed out to reporters that after the market rumors, the US side may appreciate the appreciation of the RMB exchange rate in the Sino US trade negotiations, which will help to reduce the huge deficit in US China trade as soon as possible.

This has also driven many hedge funds to sharply reduce their short positions in the past week, and at the same time increase investment in buying RMB arbitrage.

Guan Tao, former director of the balance of Payments Division of the State Administration of foreign exchange, said in an exclusive interview with the economic news reporters in twenty-first Century at the "second Shanghai international financial forum" sponsored by Fudan School of international finance, that in the Sino US trade negotiation stage, the US demand for RMB exchange rate is not necessarily appreciation, but not depreciation.

Specifically, the United States government has repeatedly expressed concern about the depreciation of the RMB exchange rate, and the US government has also realized that after the reform in August 2015, the RMB exchange rate is no longer an appreciation issue, but a devaluation pressure.

In the view of Boris Schlossberg, head of macroeconomic research at BK Asset Management, the exchange rate of RMB does not depreciate in the Sino US trade negotiations, which is not enough to stimulate the RMB exchange rate to continue to rebound significantly.

At present, the biggest driving force for pushing the RMB exchange rate completely out of the previous downward pressure is a significant change in the global financial market's expectation of Sino US economic development. Compared to the US economy, it has tended to grow negatively because of the Trump fiscal policy dividend subsiding and the financial market turbulence. The macroeconomic situation in China is showing a rebound trend with the implementation of the active fiscal and loose monetary policy, which drives a large number of asset management institutions to continuously improve the proportion of RMB assets investment.

"A large number of large international financial institutions have said that as long as China's economic growth is in line with market expectations, the exchange rate buying surge triggered by the additional renminbi assets may run through the whole 2019."

He revealed.

If the Fed slows the pace of raising interest rates higher than market expectations, the exchange rate will even exceed its expectations.