Can it still rise back?, Set the lowest value since 2007! What's wrong with the Chinese yuan

Entering September, the trend of the RMB against the US dollar exchange rate has once again fluctuated.

Taking the onshore RMB as an example, compared to its closing price of 7.2595 on August 31, as of 3am on September 9, the lowest value has reached 7.3510. Not only has it depreciated by nearly 1000 basis points in just a few days, but it has also set the lowest onshore RMB exchange rate against the US dollar since 2007.

What's wrong with the RMB exchange rate? Can it still rise back?

Multiple factors causing phased pressure

The offshore renminbi, which is in sync with the onshore renminbi trend, has also hit a new low of 7.3679 in the early morning of the 9th. The central parity rate of the renminbi against the US dollar has also fallen below the 7.2 level, with the most recent daily trading report being 7.2150. The US dollar index continues its rebound trend after falling below 100 since mid July, and has recently rebounded above 105.

Pang Ming, Chief Economist and Director of Research at Jones Lang LaSalle in Greater China, told China News Agency that the recent temporary pressure on the renminbi against the US dollar exchange rate is mainly due to passive depreciation against the backdrop of a strengthening US dollar index and widening expectations of the US China interest rate spread.

Specifically, due to the persistent inflation problem in the United States, the Federal Reserve may continue to maintain interest rates at restrictive levels for a period of time in the future, and several leading indicators of the US economy have been more positive recently, indicating that the US economy is more likely to achieve a soft landing to slow down growth; At the same time, the PMI data and leading indicators of major economies in the Eurozone are relatively weak, and safe haven sentiment is once again rising amidst recession concerns.

"These factors have led to the recent upward trend of the US dollar index, which has correspondingly put short-term, periodic, and fluctuating pressure on the renminbi against the US dollar exchange rate. If we observe the renminbi exchange rate index of the China Foreign Exchange Trading Center, which tracks changes in the renminbi against a basket of currencies, we can see that there has been a relatively clear trend of stabilization and recovery in the past month," said Pang Ming.

Wang Youxin, a senior researcher at the Bank of China Research Institute, mentioned that Saudi Arabia's announcement to extend its oil production reduction until the end of the year, coupled with the approaching heating season in the northern hemisphere, has raised concerns about energy shortages in the market. The rapid rise in crude oil prices has not only increased economic downward pressure, but also made market concerns about inflation in Europe and America more stubborn. European and American central banks may further extend their tightening monetary cycles, which will boost the US dollar and US bond yields and suppress the exchange rate trends of non US currencies, including the renminbi.

Some experts also believe that in the short term, there may still be some doubts in the market about economic recovery. For example, in recent months, the PMI index of the service industry has continued to cool, domestic interest rates have declined, the US dollar interest rate has rebounded strongly recently, and stock market fluctuations have all caused disturbances to the short-term foreign exchange market.

Can the Chinese yuan still rise back?

Wang Youxin predicts that in the short term, as energy prices rise, the rate of decline in core inflation in the United States may continue to slow down, and the Federal Reserve will continue to hype up interest rate hikes until November. In addition, the global economy and the eurozone economy are still facing downward risks, and the US dollar index may continue to maintain a relatively strong position.

However, in the long run, a downturn in the US economy and a decline in economic indicators will prompt the Federal Reserve to consider ending the interest rate hike cycle, while the dividends of China's stable economic policy will gradually be released in the fourth quarter. With this fluctuation, the RMB exchange rate is expected to achieve a slight rebound by the end of the year.

It must be noted that the foreign exchange market is greatly influenced by expectations, but expectations can change at any time.

Some argue that short-term fluctuations do not alter the rebound trend of the RMB exchange rate within the year. Mainly due to the fact that the most difficult periods of domestic consumption and foreign trade may have passed, the momentum of economic recovery is expected to gradually improve, and the trend of macro risks is converging. The renminbi has solid fundamental support, and the People's Bank of China has many tools to stabilize the exchange rate.

Although the RMB has recently followed short-term macroeconomic fluctuations, from the perspective of internal and external environmental trends, it is expected that the RMB exchange rate will continue to fluctuate in both directions near a reasonable equilibrium level in the second half of the year.

Pang Ming mentioned that recently, relevant departments have taken policy measures such as introducing counter cyclical factors, raising the macro prudential adjustment parameters of cross-border financing, issuing offshore central bank bills and treasury bond, and lowering the reserve requirement ratio of foreign exchange deposits to strengthen effective management and reasonable guidance of market expectations. The tool options retained in the future policy toolbox are still sufficient. It can be said that China has the foundation, strength, confidence, ability, and methods to maintain the basic stability of the RMB exchange rate.

He said that from a longer time perspective, with the further release of space for moderate stimulus, reasonable easing, timely reinforcement, and countercyclical regulation in various macroeconomic policies, the recent effects of incremental policies on stabilizing confidence, stabilizing growth, and expanding domestic demand continue to emerge. It is expected that the decisive role of the market in the exchange rate will be upheld, the elasticity of the RMB exchange rate will be enhanced, the power and mechanism for correcting RMB exchange rate deviations will be improved, and the RMB exchange rate will continue to maintain basic stability at a reasonable equilibrium level.