Affected by the overnight US dollar slump, on January 10, the central parity of the RMB against the US dollar rose sharply by 366 basis points to 6.8160, the highest since September 2018.
Both the onshore and offshore RMB exchange rates against the US dollar rose above the 6.80 mark, and the onshore RMB exchange rate against the US dollar rose by more than 400 points.
According to the analysts' view, the sharp rise of the RMB was mainly affected by factors such as the peak of seasonal settlement at the beginning of the year, the improvement of external factors and the US dollar index. Some experts believe that the January start is very important for the trend of the renminbi. Statistics show that the strong January renminbi tends to strengthen throughout the year, and it is expected that the renminbi exchange rate is expected to progress steadily throughout the year.
Good one: January settlement factor
January has always been the peak of the “compulsory” settlement of seasonal markets. Many enterprises have financial accounting and repatriation of overseas profits before the Spring Festival, which has increased the demand for foreign exchange settlement, which in turn has pushed up the RMB exchange rate.
Expert: Strong in January, strong probability throughout the year
Han Huishi, research director of CCB Financial Assets Investment Co., Ltd., said that the relationship between the January trend and the year since 2014 can be found. A good start in January often means that the renminbi is likely to strengthen throughout the year.
Since 2014, the trend of RMB appreciation has come to an end, and market sentiment has fluctuated drastically. However, the trend of RMB in January is often similar to the overall performance of the whole year, so the performance of the RMB in the beginning of the year is particularly concerned.
In January 2015, the RMB continued to depreciate in the fourth quarter of 2014 against the US dollar. In 2015, the RMB depreciated against the US dollar by approximately 4.5%. In the same year, the famous 8.11 one-off depreciation occurred.
In January 2016, the renminbi against the US dollar continued its depreciation in the fourth quarter of 2015, when the renminbi depreciated against the US dollar by about 6.6%;
In January 2017, the renminbi rebounded against the US dollar, and the renminbi appreciated by 6.7% against the US dollar;
In the last 4 years, only 2018 was special. In January 2018, the renminbi continued its strong performance against the US dollar in the fourth quarter of 2017. However, in late April 2018, the bilateral exchange rate of the renminbi against the US dollar began to depreciate, and the annual depreciation was about 5.2%.
Of course, it is too early to say that the overall appreciation of the renminbi in January is too early. It is even more difficult to predict the renminbi market for the whole year.
Overall, the appreciation of the renminbi from November 2018 may be somewhat sustainable. If the US dollar index is also relatively matched, the market outlook will continue to be weak, and the appreciation of the RMB against the US dollar will be clearer.
Good second: the US dollar index is weak
The sharp fall in the US dollar index is also considered to be one of the important reasons for the appreciation of the renminbi. The US dollar index fell 0.75% overnight to 95.2039. As the latest minutes of the Fed’s meeting show, many policymakers are patient with future interest rate hikes. The minutes of the meeting showed that many Fed policy makers said that the Fed has the ability to be patient with further tightening policies, given the weakening inflationary pressures.
The team of China Merchants Securities Xie Yaxuan said that the strength of the US dollar index in the past few years has suppressed the price of many assets including the RMB. The end of the strong US dollar cycle will have an important impact on a series of asset prices in the future.currencyIt is expected to get rid of the pressure, the RMB exchange rate is expected to stabilize and rebound, and the international capital flowing to emerging economies is expected to gradually recover.
Different views: the dollar index is not that important
But for the contribution of the US dollar index, Han Huishi has different views. He said that from the trend of appreciation of the renminbi since November last year, this round of renminbi strength is not mainly due to the weakening of the US dollar.
Han Huishi explained that the appreciation of the RMB has exceeded 2% since November last year, but the depreciation of the US dollar index during the same period was only about 0.5%. Considering that the bank's foreign exchange settlement and sales in November last year had a maximum monthly deficit of $17.9 billion, the renminbi began in mid-November last year. This wave is clearly a trend of 'contrarian rise', which may mainly reflect the currency. The authorities have restrained the position of the RMB depreciation.
In fact, as long as you look at the market conditions in 2015-2016, it is easy to find that the impact of the fluctuation of the US dollar index on the RMB is not as big as imagined. In 2015-2016, while the RMB continued to depreciate significantly, the US dollar index fluctuated between 94 and 100 in 80% of the time, and the relationship with the RMB was not closely related. The two variables that are not closely related to each other, because there is a similar trend after 2017, it is said that there is a strong causal relationship between the two, it is obviously not convincing.
Good three: external factors warming up
The warming of external factors is also considered to be one of the important reasons for the strength of the renminbi.
Wang Youxin, a researcher at the Institute of International Finance of the Bank of China, said that the market is expected to improve, and the rapid rise in the exchange rate in the past two days is reflected.
Wang Youxin believes that the exchange rate is the ratio of the prices of the two currencies. Therefore, it is not only possible to judge the trend from the perspective of the fundamentals of the domestic economy, but also to have an international and global perspective.
Although the current domestic economic growth is still under pressure and the trade surplus is likely to narrow, the situation in the United States will deteriorate even more. This is a relative concept. It is expected that the RMB exchange rate will stabilize and rebound.
Institution: The end of the dollar or the end of this year
Xie Yaxuan team also said that looking forward to 2019, we judge that the US dollar index is already strong, and will fall back during the year, ending the strong dollar cycle of this round since 2012. The strength of the US dollar index is, in the final analysis, the result of a change in the strength of the US economic fundamentals and other relevant economies.
The reasons for pushing the dollar to end its strength include four points:
First, the economic fundamentals and monetary policy between Europe, the United States and Japan have been divided into convergence;
Second, the renewed competitive depreciation of Japan and the Eurozone pushed up the possibility of a US dollar index;
Third, the reverse spillover effect of the RMB exchange rate fluctuation on the US dollar;
Fourth, the Fed’s rate hike does not constitute a supporting factor for the US dollar index.
Wang Youxin expects that the RMB exchange rate is expected to strengthen in the whole year and close at around 6.6-6.7.