On January 9-11, 2019, the renminbi continued to appreciate by a large margin of 1,000 points to 6.74, a record high since August 2018.
Many people believe that the recent appreciation of the renminbi is mainly due to the depreciation of the US dollar, but we find that the dollar factor can only explain a small part.Review the RMB exchange rate andcurrencyPolicy, the relationship between China and the United States, can be found that the previous monetary policy is loose, the spread between China and the United States is convergent, and the corresponding is the depreciation of the RMB. This time, on the contrary, the appreciation of the RMB has another reason.
We looked at the renminbi at the beginning of 2017 and proposed “the counter-attack of the renminbi trend”. In the beginning of 2018, we turned around and looked at the renminbi, proposing “the devaluation of the renminbi to 7”. Both opposite views were verified by the market. For 2019, we proposed "the renminbi to re-attack" and the renminbi "strong currency trend" has been opened.
Is the appreciation of the renminbi depreciated because of the dollar?
Many viewpoints believe that the recent appreciation of the renminbi is mainly due to the depreciation of the US dollar. Historically, the US dollar against the RMB exchange rate is highly correlated with the US dollar index.
However, the recent appreciation of the renminbi cannot be entirely attributed to the depreciation of the US dollar. In the past three trading days, the appreciation of the RMB against the US dollar was 1.4%, while the depreciation of the US dollar index was only 0.6%.
The depreciation of the dollar has some explanatory power for the recent appreciation of the renminbi, but it is obviously not all.
From the perspective of the RMB against other exchange rates, the appreciation of the renminbi against the euro was 0.7%, and the appreciation of the renminbi against the yen was 1.2%, indicating that the appreciation of the renminbi is not only relative to the US dollar, but relative to the major currencies.
This means that this round is dominated by the appreciation of the renminbi, rather than the depreciation of the US dollar, and the appreciation of the renminbi has a deeper reason.
Currency loose plus VS RMB appreciation accelerates
Looking back at history, we can find that the RMB exchange rate against the US dollar is closely related to China's monetary policy.If we use the 10-year government bond as the representative of the monetary policy, we can find that the 2015-2016 monetary easing cycle corresponds to the depreciation of the RMB. In 2017, the monetary tightening cycle corresponds to the appreciation of the RMB, and the 2018 monetary easing cycle once again corresponds to the depreciation of the RMB.
From the perspective of Sino-US spreads, the correlation between the RMB exchange rate and the Sino-US spread also exists.That is, the spread between China and the United States has widened, the renminbi has appreciated, the spread between China and the United States has narrowed,
Historically, the monetary policy cycle and the Sino-US spread have a certain leading edge to the exchange rate.For example, at the end of 2016 and the end of 2017, of course, this kind of lead may be just a coincidence, because the inflection point of the two RMB exchange rates is actually the turning point of the US dollar index. It is difficult to say that China's monetary policy or Sino-US spread affects the US dollar index.
It is worth noting that the appreciation of the renminbi is exactly the opposite of the performance of the Chinese central bank's monetary policy and the Sino-US spread.Recently, the People's Bank of China has increased monetary easing, including comprehensive RRR cuts. The Sino-US spread has narrowed significantly due to the recent rise in US bond yields, but it is precisely at this time that the RMB exchange rate has appreciated sharply.
From the perspective of monetary policy and interest rate differentials, the RMB exchange rate should not appreciate in the near future and should depreciate, which indicates that the appreciation of the RMB has nothing to do with monetary policy.
Return of RMB exchange rate under trade mitigation
We believe that the main reason for the appreciation of the renminbi is that the return of the renminbi exchange rate in the context of trade easing is a process of repairing the extraordinary devaluation of the renminbi in 2018.
From the time scale extended to five years, the US dollar against the RMB exchange rate and the US dollar index have a higher correlation, but there are also phased decouplings, and this decoupling will eventually be repaired.
This led to the fluctuation of the US dollar against the RMB exchange rate around the US dollar index. The appreciation of the RMB was the return process after the excessive depreciation in the previous period.
In the second half of 2014-the first half of 2015, the US dollar index appreciated sharply. The RMB exchange rate insisted on not depreciating against the US dollar, which led to the RMB exchange rate damming the lake. Finally, after the “8.11” exchange rate reform in 2015, the depreciation pressure was released, resulting in the rapid depreciation of the RMB to the due Degree.
From June to October 2018, the depreciation of the RMB far exceeded the appreciation of the US dollar. The main reason was that trade friction caused an extraordinary depreciation of the RMB exchange rate.The main reasons include: market speculation that China may allow the devaluation of the renminbi to hedge against the adverse effects of tariffs imposed by the United States on China; and the market believes that changes in Sino-US relations have led to pessimistic long-term prospects in China.
Whether these reasons are true or not is not important. The depreciation of the RMB is only a self-fulfilling process expected by the market.
At the beginning of December 2018, the G20 Sino-US summit meeting exceeded market expectations, triggering a significant appreciation of the RMB; in early January 2019, China and the United States held vice-ministerial consultations, and the expectations of Sino-US easing were further enhanced, which led to the appreciation of the RMB. direct cause.
We can reverse the reason for the previous devaluation, which is the reason for the recent appreciation of the renminbi: for this round of appreciation, it is because the market speculates that the Chinese government may deliberately appreciate the renminbi to promote imports and reduce exports so that China and the United States can reach an agreement. - Reduce trade surplus; At the same time, the market speculates that the easing of Sino-US relations is conducive to China's long-term prospects.
It is equally unimportant whether these speculations are true, and the market will once again perform the expected self-realization.
In 2019, the RMB "re-invaded"
The economist Deng Haiqing team proposed "the counter-attack of the renminbi trend" in early 2017. At the beginning of 2018, it completely turned around and proposed "the devaluation of the renminbi to 7". Both opposite views were verified by the market.
For 2019, we believe that there are three main reasons for the "renminbi re-attack":
First, the strong dollar cycle may end.Although the recent sharp appreciation of the renminbi has little to do with the depreciation of the US dollar, the long-term trend shows that the US dollar cycle does determine the exchange rate of the renminbi against the US dollar. In 2018, the United States outshines, the Fed is in the forefront of the central bank's tightening of the world's major economies, and the US dollar is also strong. However, the downward pressure on the US economy in 2019 is increasing. The end of the Fed rate hike cycle is a high probability event. The end of the strong dollar cycle determines the direction of the RMB exchange rate. .
Second, the RMB exchange rate is inactivated by China's economic and monetary policies.At the end of 2018, China’s economic data went down further, and monetary easing was significantly overweight, but the RMB exchange rate has risen steadily.foreign exchange reservesIt is no longer reduced, indicating that the exchange rate market has implied sufficient China's economic downturn and monetary easing expectations; unless the Chinese economy has experienced a serious deterioration in expectations, the pressure on the RMB exchange rate is already small.
Third, trade easing is good for the appreciation of the renminbi.The fundamental contradictions between China and the United States have a long way to go, but at least the prospect of a temporary and phased agreement is high. The market will also speculate that China wants the renminbi to appreciate to reduce the surplus. Judging from the current level of the US dollar against the RMB exchange rate corresponding to the US dollar index, merely repairing the correlation will also lead to the continued appreciation of the RMB.
In summary, we strategically look at the RMB exchange rate in 2019, the unilateral depreciation of the RMB is over, and the “strong currency trend” may have started!
(Article source: Gloem)