On August 15, the offshore RMB exchange rate fell 501 points to close at 6.9467. On August 16, the offshore RMB exchange rate rose by more than 700 points, as of 6.8788 at 21:30 Beijing time.
The RMB exchange rate is approaching the 7-point mark, and the nerves of all parties in the market are tightened. The exchange rate trend has become the most important factor affecting the trend of short-term A-shares.
The yuan has risen 700 points today.
On August 15th, on the day when the central bank carried out 383 billion yuan of MLF operations, the onshore renminbi against the US dollar fell below 6.9, the lowest to 6.9350, and the offshore renminbi fell below 6.95, the lowest to 6.9580.
Offshore RMB against US dollar spot exchange rate
Over the past four months, both onshore and offshore renminbi have fallen more than 6,000 points. At the current distance of 7 points, there are only about 1000 basis points left. On August 15, the offshore RMB fell by 501 points a day.
However, on August 16th, the offshore renminbi opened lower and went higher. It once rose more than 700 points, and the onshore renminbi also returned to around 6.90. The offshore exchange rate even surpassed the onshore exchange rate and formed an “upside downâ€.
Looking back on the fourth quarter of 2016, the offshore and onshore RMB did not fall below 7, the former was as low as 6.9880, and the latter was as low as 6.9666. Then the V-shaped reversal was staged, and the RMB rose against the US dollar. This round of uptrend until this year 4 It was only at the end of the month.
In 2016, the offshore RMB exchange rate against the US dollar fell to a minimum of 6.9880.
This time, can the renminbi turn the tide again?
At the end of 2016 and the beginning of 2017, the RMB exchange rate was reversed at 7:00, an important reason was that the US dollar reversed.
After hitting a new high of 103.82 on January 3, 2017, the US dollar index turned into a downtrend channel. This round of losses continued until February of this year, and the US dollar index stabilized after falling to a minimum of 88.25.
The dollar reversed in early 2017
Since 2018, non-US dollar currencies have depreciated against the US dollar. In the first half of the year, the Argentine peso, the Russian ruble, the Indian rupee, the Brazilian real, and the South African rand were all depreciated against the US dollar. Recently, the Turkish lira has nearly collapsed, causing global market turmoil.
The renewed strength of the US dollar is the key reason for the depreciation of emerging market currencies. If the US dollar "brates the car" or even "drops" at this time, it may be a "hot" for a number of emerging market currencies.
At present, there is indeed a divergence in the market against the US dollar, but the divergence lies in "how much can be increased" rather than "how much will fall." Most of the views do not believe that the dollar will reverse the uptrend and weaken again.
The appreciation of the US dollar in 2016 is based on expectations; now the appreciation of the US dollar depends on the facts. The US economy has outperformed, the Fed has steadily raised interest rates and contracted, and the US dollar has relatively obvious advantages. The US tax cuts are attracting overseas dollar returns, and their demands for reducing the foreign trade deficit are also strong.
All of this means that global dollar liquidity is shrinking in a trend and will support the dollar exchange rate.
At the end of 2016, the renminbi could “stable†around 7 due to the stabilization of the Chinese economy, tightening of monetary policy, tightening of foreign exchange policies, and greater intervention by the central bank. While the dollar is rising, these internal factors have given the RMB exchange rate a certain support.
In contrast, the latest economic data released by the National Bureau of Statistics in July is not too good, investment, production, and consumption are lower than expected, and economic growth resilience still exists, but internal and external risk factors cannot be ignored.
In the face of economic growth pressure, monetary policy has relaxed. Since the beginning of this year, the central bank has implemented targeted RRR cuts three times. At the beginning of this month, the money market interest rate fell to the low level of the third quarter of 2015.
At the same time, the central bank has basically withdrawn from normal foreign exchange intervention. This can also be reflected in the changes in official foreign exchange reserves and central bank foreign exchange holdings. Since the second quarter, in the case of the continued depreciation of the RMB against the US dollar, the changes in the official website's foreign exchange reserves and foreign exchange holdings have not changed much, and even increased slightly.
The central bank’s foreign exchange holdings have continued to rise slightly this year.
This shows that the central bank did not stabilize the exchange rate by selling a large amount of foreign exchange.
Statistics show that this year's onshore RMB fell from 6.28 to 6.90, which took only four and a half months. In the 2015-2016 round, it took 15 months. In the words of the central bank, the flexibility of the RMB exchange rate has increased significantly this year. Market supply and demand factors have played a greater role in determining exchange rate fluctuations.
The central bank stressed "to adhere to the bottom line thinking"
The second quarter monetary policy report released by the central bank recently mentioned the “procyclical fluctuations†in the foreign exchange market. Last time, it was the second quarter monetary policy report in 2017.
At present, the microeconomic entities in China have not yet fully established the concept of financial neutrality. The foreign exchange market is prone to the procyclical behavior of “chasing up and down†and the “herd effectâ€, which intensifies market volatility. At some point since the second quarter of 2018, there have been some signs of procyclical fluctuations in the foreign exchange market.
It is worth noting that the central bank emphasized in the report that while maintaining exchange rate flexibility, it must adhere to the bottom line thinking and, if necessary, adopt a macro-prudential policy to adjust the foreign exchange supply and demand counter-cyclically to maintain the smooth operation of the foreign exchange market.
The central bank said that it will take further effective measures to counter-cyclical adjustments when necessary according to the development of the situation, play a good role in regulating macro-prudential policies, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
There is no unified understanding of the market where there is a reasonable balance. 7 is not the bottom line, but also to be further observed.
However, the status of the psychological barrier of 7 is clear. If it falls shortly, it may further intensify "chasing up and down." When the RMB exchange rate approaches 7, the nerves of all parties in the market are tightened. Because of this, this position may become a high-risk area with counter-cycle adjustment.
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