How long will this sharp fall in the RMB exchange rate last?

In the month since late April, the RMB exchange rate against the US dollar has experienced a sharp decline:

From April 20 to May 16, the closing price of the domestic RMB against the US dollar fell from 6.38 to around 6.80, with a cumulative depreciation of 6.2%.

Such a rapid decline has never been seen in China's foreign exchange market. However, on May 20, the onshore and offshore RMB recovered the 6.70 mark.

Joy and sorrow

This round of sharp decline in exchange rate means an increase in profits for export enterprises. For orders signed at the beginning of the year with an exchange rate of about 6.4, many enterprises immediately chose to put their bags in order.

But what about the future exchange rate?

What exchange rate should we quote now?

Buyers see the depreciation trend and ask for product price reduction. Can you agree?

With the tool of locking foreign exchange, the decline is so large. Do you still lock foreign exchange? How many locks?

……

These problems make many foreign trade enterprises tangle.

In addition, it should be noted that since this year, when the US dollar index has risen by about 9%, the exchange rates of major currencies such as the euro, the Japanese yen and the pound have depreciated by about 8% - 10% against the US dollar. In these devalued countries, buyers' willingness to purchase has decreased.

The rapid rise of foreign trade is not as important as the rapid decline of foreign exchange rate.

signal

For the recent devaluation of the RMB to a certain extent, Wang Chunying, deputy director and spokesman of the State Administration of foreign exchange, said in an exclusive interview with Xinhua News Agency a few days ago that this is a phased short-term change and does not change the overall characteristics of two-way fluctuation of the RMB exchange rate and maintaining basic stability at a reasonable and balanced level. "For a super large economy like China, the long-term trend of exchange rate is mainly determined by domestic fundamentals."

Zhang Ming, deputy director of the Institute of finance of the Chinese Academy of Social Sciences, said that although the RMB exchange rate against the US dollar may still face depreciation pressure in the short term, the probability of falling below 7.0 this year is still low. Even if it falls below 7.0, it is unlikely that the RMB exchange rate will continue to fall sharply. For some time to come, the RMB exchange rate against the US dollar may again show a wide fluctuation pattern in the range of 6.7 ~ 7.0.

forecast

With the increasing flexibility of the RMB exchange rate in recent years, the sentiment in the foreign exchange market is relatively stable, and most institutions believe that the probability of significant depreciation of the RMB exchange rate is low.

Wang Tao, head of Asian economic research and chief China economist at UBS, believes that in view of the significant appreciation of the RMB against the CFETS basket in the past 15 months and the weakening of fundamental factors, the RMB exchange rate is expected to depreciate further. However, with other exchange rates unchanged, the devaluation of the RMB against the US dollar to 6.9 will only drive the CFETS RMB exchange rate index back to 100.4, that is, the average level in 2021. It is expected that the RMB will weaken further against the US dollar in the coming months, reaching 6.9 by the end of the year. Due to the recent strong momentum of the US dollar and the weakening of China's exports and economy, the RMB against the US dollar may break through the 7 mark in the middle of the year, but it should return to within 7 by the end of the year.

CICC research report believes that from the perspective of market sentiment, fundamentals and other dimensions, positive factors are increasing, which will be conducive to the stability of the RMB exchange rate. For example, there is no panic bet to short RMB in the offshore market; From the high-frequency data, the whole country's vehicle freight situation in early May has been marginally better than that in April.

Northeast Securities Research Report believes that the RMB depreciation space may be limited. First, the US dollar index is expected to weaken gradually after the intensive interest rate hike and table contraction in the United States in the second quarter; Second, with the implementation of the domestic steady growth policy, the economy is expected to improve gradually in the second quarter, and the economic growth is expected to pick up slightly in the second half of the year; In addition, if the RMB exchange rate continues to depreciate rapidly and sharply, the central bank may continue to introduce relevant policy intervention.

Despite the recent rapid depreciation of the RMB exchange rate, there is no obvious sign of stabilizing the exchange rate except that the central bank announced on April 25 to reduce the foreign exchange reserve ratio of financial institutions by 1 percentage point.

In fact, the central bank has a wealth of tools in its toolbox to curb the excessive depreciation of RMB. At present, it has adopted only a part of them. There is a lot of room for types and efforts that can be released in the future, such as restarting the countercyclical factor, strengthening the supervision of short-term capital outflow, increasing the risk reserve for long-term foreign exchange sales of financial institutions, intervening in the offshore RMB market, etc.

Please pay close attention to the market trend in the near future and do not judge the timing of foreign exchange settlement with the mentality of gambling!