Recently, the RMB exchange rate against the US dollar has continued to fluctuate and fall, and the central parity rate of the RMB has been lowered by 1,581 basis points in May. The offshore and onshore RMB exchange rate against the US dollar also continued to depreciate, falling below the 7.1 mark one after another.
Looking ahead to the future market, experts have said that there is no basis for continued depreciation of the renminbi. Feng Lin, senior analyst of Oriental Jincheng Research and Development Department, believes that in the short term, the RMB "breaking 7" trend or will continue for a period of time, with the Fed entering the closing stage of this round of interest rate hike process, coupled with the impact of the US banking crisis, the downward pressure on the US economy is further increased, and the possibility of the US dollar index continuing to rise in the later period is unlikely. In this year's overseas economic downturn, domestic economic recovery prospects, there is no large depreciation of the RMB. "In the second half of the year, as the domestic economic repair process continues, and taking into account other influencing factors, the RMB exchange rate against the US dollar is likely to have a slight appreciation of about 2.0%, that is, from 6.95 at the end of last year, a slight rise to about 6.8." Feng Lin predicted.
Citic Securities believes that since mid-April, the US dollar index has risen again, and most non-US currencies have weakened to varying degrees under the strong US dollar, including the US dollar against the RMB spot exchange rate exceeding 7.1.
The reason is that, on the one hand, the relative resilience of the US economy, the stickiness of inflation slightly more than expected, and the hawkish remarks of Federal Reserve officials led to the correction of market interest rate cut expectations, and the debt problem disturbed market risk appetite jointly drove the rebound of the US dollar index, which put passive depreciation pressure on the RMB exchange rate. Under the strong US dollar, most non-US currencies depreciated to varying degrees, among which the yen depreciated by 4.9% against the US dollar, the euro, Australian dollar, New Zealand dollar and other currencies also weakened, and the RMB depreciated by 3.3% against the US dollar during the same period.
On the other hand, the domestic economic recovery is less than expected, the margin of the basic account surplus in the balance of payments is narrow, and the demand of market players for RMB is weak, which also leads to the weakness of RMB.
Looking forward, CITIC Securities believes that in the short term, the yuan may be weak against the backdrop of a high US dollar index and a lack of domestic policy and fundamental catalysis. Entering the third quarter, with the weakening of the US dollar index and the bottoming out of the internal momentum of the domestic economy, the RMB is expected to gradually stabilize and enter the appreciation channel driven by the slowing internal and external pressure.
From the past history, when the RMB exchange rate fell, the central bank's attitude and response generally have three kinds. First, by reducing the foreign exchange reserve ratio, the supply and demand of the foreign exchange market are appropriately adjusted to stabilize market expectations. Since 2020, the central bank has adjusted the foreign exchange reserve ratio four times. Second, we will adjust monetary policy. Intervention to increase foreign demand for the yuan through more market currency instruments to stabilize the exchange rate, rather than the extensive use of interest rate and reserve ratio adjustments as the main means of response. Third, the central bank may let the exchange rate fluctuate. If the exchange rate of RMB against the US dollar falls under the influence of market preference, it will not lead to large-scale capital outflow, and it is also conducive to the short-term recovery of exports, so the central bank may wait and see the change, and will not easily adjust the monetary policy because of the exchange rate.
