Which is more critical, the nominal spread or the real spread? Foreign capital nominal interest margin. The euro accounts for 57.6% of the dollar index. We often use the interest rate difference between Europe and the United States to evaluate the prospect of the dollar index. Since the real interest rate can better describe the return on capital, the correlation between the US dollar index and the real interest rate spread between the United States and Europe is stronger. So is the real interest margin framework applicable to the RMB exchange rate? Due to the difference of exchange rate system, this framework may not be applicable to the RMB exchange rate. We have observed that the increase and decrease of foreign capital's holdings of Chinese bonds are highly correlated with the nominal interest margin, that is, compared with the actual interest margin, foreign capital pays more attention to the nominal interest margin.
RMB exchange rate framework: US dollar is β； Export is α。 We use the dollar index as β As, export share α The trend of yen exchange rate estimated by factors is similar to the real value. Of course, non American domestic policies will also affect the trend of exchange rate. It is also very effective to use this framework to understand the trend of RMB exchange rate from 2016 to 2020, but the actual value of RMB exchange rate deviates greatly from the model value after Q2 in 2021. It can be seen that some factors beyond the framework have affected the trend of RMB exchange rate after 2021q3, such as overseas hedging demand or China's counter cyclical adjustment factors. However, we believe that the model will not fail for a long time, and quantitative change will eventually turn into qualitative change.
2022q2 RMB exchange rate may be reduced to 6.8-7.0.
1) 2022q2 dollar index is still at a high level. We reported on April 7, "will the US dollar break 100 again?" It was pointed out that the Russian Ukrainian war hit the European economy hard, leading to the depreciation of the euro and the reverse push up of the US dollar. Looking back, Federal Reserve Chairman Powell and many Federal Reserve officials all stated that they would raise interest rates by 50bp at the FOMC in May and shrink the scale. Against the background of accelerated tightening of US dollar liquidity, there is a high probability that the US dollar index will continue to rise in the next 1-2 months.
2) the export share of Q2 may fall slightly due to the recovery of overseas production and the outbreak of the epidemic in China. The obstruction of overseas production after the epidemic has increased China's export share from 13.1% in 2019 to 15.2% in 2021. At present, with the recovery of overseas production and the outbreak of China's epidemic, China's export share may fall slightly below 15%.
3) Q2 RMB exchange rate may depreciate slightly to the range of 6.8-7.0. Assuming that the Q2 US dollar index is in the range of 100102 and China's export share is 15%, the RMB exchange rate may fall in the range of 6.8-7.0. Although the accuracy of the model has decreased since 2021q3, the sudden depreciation of the RMB exchange rate this week may indicate that the impact of the US dollar and export share on the exchange rate in the model has been deduced from quantitative change to qualitative change. Once the depreciation expectation is formed, the RMB exchange rate may enter a self strengthening stage, and the pressure of periodic depreciation cannot be underestimated.
4) if periodic exchange rate depreciation does occur, foreign capital may still flow out, which will still have a certain negative impact on RMB denominated assets.
Risk tip: Fed's monetary policy expectation; The epidemic situation in China exceeded expectations; China's economy and policies exceeded expectations; China's monetary policy exceeded expectations.
