Recently, under the differentiation of fundamentals and policies, the narrowing of interest rate spread between China and the United States and capital flows have not driven the depreciation of RMB exchange rate. On the contrary, the RMB continues to be strong. Is the main logic and future deduction? This paper is analyzed for reference.
Q: what are the hot topics in the foreign exchange market recently? The US dollar is stronger and the RMB is stronger
Since the fourth quarter of 2021, under the background of the overall strength of the US dollar, the exchange rate of RMB against the US dollar has also continued to appreciate, which is slightly different from the trend law in recent years. Since the "811 foreign exchange reform" in 2015, the trend of RMB / US dollar exchange rate is very consistent with the US dollar index, but it has been different since the fourth quarter of 2021. Against the background of the appreciation of the US dollar index, the RMB exchange rate against the US dollar continued to strengthen. From the perspectives of China US economic performance, policy differentiation and China US interest rate spread, it is impossible to explain the reasons for the strengthening of the US dollar and the RMB.
The RMB not only appreciated against the US dollar, but also against a basket of currencies. The growth of BIS and SDR RMB indexes converged. The SDR RMB exchange rate index is mainly composed of US dollars and euros, while the BIS RMB exchange rate index includes the marginal change of some emerging markets against RMB. According to the data, from the beginning of October last year to the end of January this year, the RMB exchange rate index of the BIS currency basket increased as much as the SDR index. The strengthening of the RMB exchange rate is not only for the US dollar, but also for the appreciation of major global currencies.
Second question: why is the RMB exchange rate so strong? The three factors of seasonality, fundamentals and capital flow resonate
In recent years, the demand for foreign exchange settlement at the end of each year will be released seasonally; During the epidemic period, the demand for foreign exchange settlement provided by China's strong exports amplified the appreciation pressure of the RMB exchange rate here. Since the "exchange reform", the bank's settlement of foreign exchange on behalf of customers will be released at the end of each year, resulting in the seasonal characteristics of the strengthening of the RMB exchange rate at the end of each year in recent years. During the epidemic period, due to the advantages of the industrial chain, China's exports continued to exceed expectations, amplifying the seasonal characteristics of the RMB exchange rate.
The marginal changes in fundamental expectations between China and the United States have kept the favor of overseas capital flows for RMB assets. From the perspective of PMI's new export orders and the gap between inventory and sales, the time point for the fastest economic recovery in the United States has passed, while China's "policy bottom" is solid and the "economic bottom" is imminent. Monetary and financial data in January also show that the credit environment has begun to pick up, and RMB assets are more favored by global funds due to higher returns.
Third question: can the strength of RMB be sustained? It may remain relatively strong throughout the year and does not have the basis for continuous depreciation
In 2022, the year of "ebb tide" of the epidemic, the performance of the US dollar index may be weak on the whole, and the external pressure on the exchange rate of RMB against the US dollar is small. The trend of exchange rate reflects the changes in the relative strength of economies. With the weakening of the impact of the epidemic, non US economies are more resilient to repair. Relatively speaking, the US dollar index may have peaked at the beginning of this year. The exchange rate of RMB against the US dollar, which is widely concerned, does not have an external basis for depreciation.
Further deduction, the support of trade surplus in the first half of the year and the convergence of China US monetary policy in the second half of the year may lead to the relatively strong exchange rate of RMB against the US dollar throughout the year. Considering the rhythm of the impact of the global epidemic and the maintenance of China's export competitive advantage, China's export toughness may continue to maintain at least in the first half of the year; In the second half of the year, considering the change trend of China US fundamentals, the monetary policies of the two countries may shift from differentiation to convergence, supporting the exchange rate.
Risk tip: the tightening of monetary policy of the Federal Reserve exceeded expectations, and the recovery of global demand and supply chain interruption was less than expected
