Exchange Rate Volatility Warning! How To Go In The Future? Do You Want To Settle The Bill Now?

During the Dragon Boat Festival, the offshore RMB exchange rate once experienced a sharp short-term derogatory effect, hitting 6.9624, a new low since November 2018.

Beijing time on Friday, June 7th, around 10:40, offshore RMB against the U.S. dollar significantly lower, followed by an expansion of the decline.

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At around 16, the offshore renminbi declines further, breaking below the 6.96 barrier.

It fell nearly 400 points in recent days, the biggest decline since May 31st.

However, after a brief decline, the offshore renminbi exchange rate recovered at that time.

At 4:59 on June 8th, the offshore renminbi was quoted at 6.9435 yuan against the US dollar.

In June 10th, the central parity of the RMB exchange rate was 1 US dollars against the RMB 6.8925 yuan, and the onshore RMB exchange rate against the US dollar exceeded 150 points, breaking 6.93.

At the same time, offshore RMB against the US dollar fell sharply by nearly 100 points, and was once close to the 6.95 pass, and the intraday close to the 6.96 integer pass.

In June 11th, the central parity of RMB against the US dollar was 6.8930, down 5 basis points from the previous trading day, and still stuck to the 6.9 yuan pass.

Throughout the May exchange rate movements, the central parity of the RMB against the US dollar fluctuated in the 6.73-6.89 range.

The biggest decline in 10 months.

It releases stronger intensity stability signals.

The trend of offshore RMB exchange rate since January

Offshore RMB exchange rate trend since January

"Break 7" or "do not break 7"?

In April 9, 2008, the exchange rate of the RMB against the US dollar was 7.002, rising to 6.9916 in April 10th, and then returning to 7.006 in April 11th, then rising to 6.9990 again in April 14th.

In 2016, the Fed's interest rate increase, Trump's election and Britain's withdrawal led to a stronger dollar, resulting in a three close to the 7 yuan mark in the year and a nearly 6.83% depreciation in the whole year.

At the end of December 2016, the offshore RMB exchange rate dropped to 6.9880 yuan against the US dollar, but from January 2, 2017, the offshore RMB exchange rate rebounded for three consecutive days, and in January 2, 2017 and 3, it rose 1.33% and 1.13% respectively.

Similar to 2017, the offshore RMB exchange rate dropped to 6.9580 yuan against the US dollar in August 15, 2018, and was less than 500 basis points from the 7 yuan pass.

In August 24th, the offshore RMB exchange rate staged a "thousand point counterattack" from around 6.9 yuan, up to 6.7996 yuan, rebounding nearly 1000 basis points compared with the low point of the day.

In August 27th, the exchange rate of offshore RMB rose to 6.79 yuan, creating a new high since August.

In October 31, 2018, the official closing price of the yuan against the US dollar fell by 121 basis points to 6.9734 on the previous day, the first time since May 2008, the official closing price of the yuan against the US dollar has dropped to 6.97.

But then,

Within 48 hours, the renminbi rose from the lowest 6.97 to nearly ten points against the US dollar, rising 1000 points in two days and 1.3% in appreciation.

Although several times close to 7 yuan mark, but since the 2008 financial crisis, the RMB exchange rate has never broken 7 in 11 years.

Institutional Analysis

In the Reuters's June survey, about half of the 31 foreign exchange strategy analysts believe that the renminbi will not break 7 against the US dollar in the near future.

But 12 people think that the next 12 months will break 7, and one of them thinks that 7 will be broken within one month.

Other strategist says it will take place more than a year later.

Goldman Sachs's latest research report lowered the forecast of RMB / US dollar in 3 months, 6 months and 12 months to 7.05, 6.95 and 6.80 respectively.

Many analysts are watching the G20 summit at the end of June.

"All eyes remain on the G20 summit," Zhang Jiantai, Mizuho bank's foreign exchange strategist, wrote in the report. "If the US and China fail to reach any agreement at the G20 summit, the US tariff increases will threaten the RMB 7 yuan test."

The G20 summit will be held in Osaka, Japan from June 27th to June 30th.

Official voice

Since May 19th, four central bank leaders have repeatedly shouted to the market, emphasizing China.

The regulatory authorities have accumulated rich experience in dealing with exchange rate fluctuations and have sufficient policy instruments.

Speculative short selling is bound to suffer huge losses.

This has not only played a role in appeasing market sentiment but also deterred market bears.

In June 7th, when the offshore RMB exchange rate plummeted, Yi Gang, President of the people's Bank of China, made an urgent response.

He said that if the Sino US trade war worsened, China had enough policy space to deal with it, including the benchmark interest rate and deposit rate.

Yi Gang believes that flexible RMB exchange rate regime is very beneficial. The Central Bank of China has not intervened in the foreign exchange market for a long time and will continue to adopt such a market mechanism.

Yi Gang said.

In addition, there is another news worth noticing recently.

The industry believes that issuing the central bank in the offshore RMB market is a means to regulate offshore RMB liquidity, so as to raise offshore market interest rates and stabilize the RMB exchange rate.