Core view:
Since the outbreak, the strength to boost the strong upward trend of RMB exchange rate mainly comes from three aspects: first, the unbalanced impact of the outbreak on the United States and Europe has pushed the trend downward of the US dollar index; Second, China's sustained and strong export growth has promoted the expansion of the trade surplus, which has led to the widening of the balance of foreign exchange settlement and sales of banks; Third, under the influence of the epidemic, the degree of monetary easing in the United States is stronger than that in China, resulting in the widening of the interest rate gap between China and the United States to an all-time high and the excessive liquidity of the US dollar.
Looking ahead, the triple factors that pushed the RMB exchange rate upward in the early stage have begun to show signs of differentiation, the US dollar index shows a stabilizing and rebound trend, China's export growth rate will continue to decline, and the degree of monetary easing between China and the United States will tend to converge. Therefore, the probability of further upward movement of RMB exchange rate is not high, but the probability of significant downward movement in the short term is also not high. We expect that the RMB exchange rate (US dollar to RMB) that has entered the peaking stage may maintain two-way fluctuations in the range of 6.3-6.7 in the later stage.
Driving factor 1: in the short term, the US dollar index will remain relatively strong and suppress the RMB exchange rate
On the one hand, whether from the market's expectations of the US and European economies, the deterioration of the US and European epidemic and the outlook of the manufacturing industry, the performance of the fundamentals of the US economy is still stronger than that of Europe. On the other hand, since April this year, the expansion speed of the Federal Reserve has begun to be slower than that of the European Central Bank. With the landing of taper, this trend is expected to be strengthened. Therefore, the US dollar index still has strong support in the short term. At the same time, we also note that, on the one hand, the poor manufacturing boom in the United States and Europe and the poor market expectations for the economy in the United States and Europe have begun to show a significant contraction. On the other hand, with taper's expectation to be fully incorporated into the pricing of the US dollar index and the weakening of the Fed's expectation of raising interest rates, the positive effect of monetary easing on the US dollar index has been basically realized. Subsequently, if the European central bank starts to reduce asset purchases, it will suppress the US dollar index. On the whole, we believe that in the short term, the US dollar index will continue its upward trend and suppress the RMB exchange rate. However, if the subsequent us and European Economic and monetary environment is expected to reverse, the US dollar index is expected to start a new round of downward trend and support the RMB exchange rate.
Driving factor 2: the decline in export growth may reduce the demand for foreign exchange settlement and sales and weaken the support for the RMB exchange rate
Looking ahead, on the one hand, the tide of fiscal stimulus subsidies in Europe and the United States is ebbing, residents gradually consume savings, the support of fiscal stimulus for demand is weakening, and the downward direction of export growth has been determined. On the other hand, the vaccine has strong resistance to severe diseases. With the continuous promotion of vaccination, it is expected that Europe and the United States will continue to promote the resumption of work, and the restrictions on the supply chain due to repeated epidemics are also decreasing. The export growth trend is likely to slow down, and the contraction of the trade surplus will reduce the demand for foreign exchange settlement and sales, thus weakening the support for the RMB exchange rate at the level of supply and demand. The uncertainty mainly focuses on the downward slope of export growth, which mainly depends on the convergence rate of the global epidemic, especially the potential impact of the new strain Omicron on the economy.
Driving factor 3: the degree of monetary easing between China and the United States will tend to converge, which will drive the RMB down against the US dollar
Looking ahead, with the landing of taper, the US monetary environment is changing from strong easing to weak easing. Subsequently, with the gradual fermentation of interest rate hike expectations, the US dollar liquidity will tend to tighten. At the same time, due to the dislocation of the Sino US economic cycle caused by the disturbance and dislocation of the epidemic, while China leads the United States in economic recovery, the marginal weakening of economic growth also leads the United States, which makes China's monetary environment likely to turn loose in the process of changing from strong easing to weak easing. The combination of the two forces will turn the difference in the speed of monetary expansion between China and the United States, which was in a broad trend in the early stage, into contraction, that is, the degree of monetary easing between China and the United States will tend to converge, which will drive the RMB down against the US dollar. main points
