What will be the impact of the RMB exchange rate that “breaks the 7”? Understand the article
2022-09-17 08:21:31Source: Chinese News Network
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China News Service, September 17 (Xie Yiguan, China-News Finance and Economics reporter) After offshore RMB against the US dollar fell below 7.0 on September 15, onshore RMB also fell on September 16 against the US dollar “broken 7”, marking a new year for 2020. For the first time since July.
What does the “break 7” RMB exchange rate mean? What impact will it have on daily life, corporate exports and even the capital market? Will the RMB continue to depreciate?
Onshore RMB / USD chart.
Does the RMB exchange rate “break 7” beyond the reasonable range?
The head of the central bank said in response to the “break 7” of the RMB: the exchange rate of the RMB “break 7”, this “7” is not the age, it will not return in the past, nor is it a dam once broken through by the flood, it will be a thousand miles away; “7” is more like the water level of a basin, which is highest during the rainy season, and then lowers again during the drought season, with ups and downs.
“Such a small periodic short-term depreciation is normal and the RMB exchange rate fluctuates in both directions.” Dong Dengxin, director of the Institute of Finance and Securities at Wuhan University of Science and Technology, told reporters that the RMB exchange rate fluctuates substantially around 6 to 7, and “breaking 7” is still Within a reasonable range, the RMB exchange rate is still stable.
Does this “Break 7” come from US monetary policy?
The RMB exchange rate “breaks 7” again after a two-year gap. According to Wen Bin, chief economist at Minsheng Bank, this is mainly due to the accelerated tightening of monetary policy by the Federal Reserve to curb high inflation. As the US dollar index continued to strengthen, including Most non-dollar currencies, including the renminbi, depreciated to varying degrees.
Recently, the Federal Reserve has repeatedly reported interest rate hikes. The US consumer price index rose 8.3% yoy in August, exceeding market expectations, and also sparked discussions about rising interest rates in the US market. the US dollar index strengthened again.
Sinolink Securities believes that due to the continued divergence of official interest rates between China and the US, 10-year Treasury bond yields between China and the US have reversed again since August 5 and expanded rapidly, which it also suppressed the RMB exchange rate to some extent.
Will the decline in the RMB exchange rate benefit exporters?
According to Dong Dengxin, “a moderate depreciation of the renminbi can help stimulate exports of domestic products. After expanding exports, it will also have a stimulating effect on economic growth.”
Sinolink Securities also said that the devaluation of the renminbi will further strengthen the price competitiveness of some sectors with a high percentage of exports. Foreign earnings from export activities are also expected to benefit from foreign exchange gains, and the depreciation of the renminbi could further increase the profits of export-oriented companies.
However, Bai Ming, deputy director of the Institute of International Market Research at the Research Institute of the Ministry of Commerce, believes that the devaluation of the RMB exchange rate is also a double-edged sword. Export companies rely on the depreciation of the RMB exchange rate to increase their income, but if they use too many imported raw materials and components, they can also increase their expenses due to the depreciation of the RMB exchange rate.
Does the devaluation of the renminbi affect daily life?
In the impression of many people, after the devaluation of the RMB, studying abroad, shopping abroad, etc. the cost will increase. But if you stay in the country and only buy goods from your country, will it have little effect?
From a global point of view, although the depreciation of the RMB against the US dollar has a relatively limited impact on people’s daily life and prices, the world is a large unified market The increase in the prices of some imported commodities will increase production business costs, which in turn affect the prices of raw materials. If we buy these goods, the spending will also increase.
However, while the yuan weakened against the dollar, it remained stable against a basket of currencies. This also means that if we go to study, shop or pay additional fees in countries that use non-US dollars as their primary payment currency.
Will the depreciation of the RMB against the US dollar affect the stock market?
Ping An Securities believes that both the RMB exchange rate and the stock prices are the result of the market price and the correlation between the two is more reflected in the fact that they are affected by the same factors and the cross influence between the two markets, rather than a causal relationship.
“Among them, economic growth, liquidity, external events, etc. will affect all cross-border capital flows and the expected return of financial assets. The impact of fundamentals and ancillary events on the exchange rate and the stock market tends to resonate simultaneously, while the impact of liquidity has its similarities and differences, furthermore, fluctuations in foreign behavior can amplify the volatility of the A stock market to some extent. ” Ping An Securities said.
Although many people fear that the devaluation of the renminbi will lead to capital outflows. However, data on foreign exchange settlement and sales in August showed that foreign investor investments in domestic bond and equity markets continued to improve.
Wang Chunying, deputy director and spokesperson for the State Foreign Exchange Administration, said recently that the net inflow of cross-border capital into commodity trading continued to be relatively large and that the inflow of foreign capital through channels such as direct investment is steadily increased.
Is now a good time to buy dollars, gold?
Under the RMB devaluation, how to allocate assets, gold or US dollar is a good choice?
Dong Dengxin said investing needs to have a long-term concept and judgments need to be made on the long-term trend. “Currently, the RMB exchange rate is still in a stable range and basically there will be no major changes in investor expectations.”
“Gold is pegged to the US dollar and fluctuations in the price of gold are strongly correlated with fluctuations in the US dollar exchange rate. Put simply, as the US dollar appreciates, gold depreciates.” Dong Dengxin he said that at the moment, gold is still at a high level. Continuing to appreciate, gold could depreciate significantly, so investing in gold is very risky.
“In this special time, cash is king. With cash in hand, you can intervene at a good low point at any time and get sizeable returns,” added Dong Dengxin.
Will the RMB continue to depreciate?
Wen Bin believes that, from the point of view of my country’s economic fundamentals, the GDP growth rate in the third quarter is expected to increase significantly compared to the second quarter, the inflation level will be moderate and controllable, and the balance of payments will be in good condition, especially basic balance of payments items such as current account and direct investment. Maintaining a relatively large surplus has laid the foundation for a stable RMB exchange rate and stable currency market, and there is no no basis for continuing devaluation of the RMB.
Since September 15, the central bank has lowered the reserve ratio of foreign currency deposits of financial institutions by 2 percentage points from 8% to 6%, which is the second time in this round of overvaluing the RMB repair.
“After looking at the operational history of this instrument in recent years, it can be seen that the adjustment of the reserve ratio of foreign currency deposits has a good countercyclical adjustment effect.” Caitong Securities analyst Li Yuebo said that if the pressure of RMB depreciation continues, the central bank’s countercyclical adjustment policy Also available in the toolbox are countercyclical adjustment factors, offshore central bank promissory notes, risk reserves. forward sale of foreign currency and foreign exchange reserves. (End)
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