How big is the impact of the yuan’s near four-year high?

2022-08-01 0 By

On February 18, the offshore yuan rose sharply against the US dollar, briefly breaching the 6.3200 mark and hitting a near four-year high of 6.3144, the highest since May 2018.The renminbi has strengthened, not weakened, amid factors such as China’s diverging monetary policy from that of the US.In addition to the increase in the surplus of foreign exchange settlement and sales due to the increase in the surplus of trade in goods and direct investment since last year, it is also important that RMB assets continue to attract foreign capital inflows that exceed market expectations.In terms of market expectations, domestic analysts for the Federal Reserve multiple interest rate hike expectations, whether the real cash, have a certain degree of doubt.Superimposed on the differences between China and the US in terms of fundamental cycles, the US tightening is not “tight”, while China’s measures to stabilize growth, LPR depreciation of the RMB, but appreciation.Offshore yuan in January is stronger than the onshore dollar index fall after rise first, onshore renminbi against the us dollar continues to rise, before 26 January 26, closed at 6.32, highest record since May 2018, but then at the end of the fed than expected and the dollar has a weaker quickly pull litre hawks, on January 27th, onshore renminbi exchange rate fell sharply,The day’s devaluation was the biggest in six months.However, the year of the Tiger opened with a return to yuan strength.The offshore rate led the way, followed by the onshore rate, suggesting that the renminbi is strengthening, not weakening, in the face of factors such as China’s diverging monetary policy from the US.On February 18, the offshore RMB rose sharply against the US dollar, briefly breaking the pre-Spring Festival 6.3200 mark and hitting a new high of 6.3144, the highest since May 2018.The onshore exchange rate, at 6.3238, has yet to break through its January 26 high.The central parity rate, quoted at 6.3343, also failed to break the Jan. 26 high.Since the second half of last year, the domestic foreign exchange market has gone out of a wave of strong DOLLAR and stronger RMB independent market under the impact of the Fed’s interest rate hike expectations.The RMB exchange rate has remained strong even in the context of multiple RRR and interest rate cuts and the continuous narrowing of interest rate differentials between China and the US.The CFETS Index, which measures the renminbi against a basket of currencies, has been on a volatile upward path since late July 2020, when it stood at 91.42 and peaked at 103.43 in late January.Should depreciation still be a concern?It is worth noting that domestic analysts have a certain degree of skepticism about whether the Fed’s repeated rate hike expectations can be fulfilled.Adding up to the differences in the fundamental cycles between China and the US, tightening in the US is not “tight”, while easing in China is not so loose.”For the whole year of 2022, we expect the Fed to raise interest rates less than expected, and the DOLLAR index will return to the downward path and fall below 90. With the dollar turning downward and China’s relatively strong economic fundamentals, we maintain our judgment that the RMB exchange rate will appreciate to 6.1 in the second half of the year.”Zheshang securities chief economist Li Chao judgment.Li chao stressed that the Fed’s policy tightening will not affect the pace of China’s monetary policy easing.Medium to long term, the yuan against the dollar long-term trend is closely related to the cycle of the American dollar, dollar cycle is determined by the factors of production in the United States, compared with that of emerging markets in our country labor element relative to America’s science and technology and capital element slightly prevail, which determine the long-term trend is the gradual appreciation of the yuan against the dollar, the yuan against the dollar is expected to follow-up still has 8 years of appreciation.Chen Xing, an analyst with Zhongtai Securities, believes that in the second half of last year, especially since the fourth quarter, the Federal Reserve’s monetary policy tone has gradually shifted to the hawkish, but it should be noted that despite the Fed’s tightening policy attitude, the dollar liquidity in the market is still quite abundant.On the other hand, in China, although we have implemented a series of monetary easing operations such as reserve requirement and interest rate cuts, the changes in the market are relatively stable, and the degree of monetary easing is actually limited.Therefore, the fed’s tightening in the second half of last year was not “tight”, and China’s loosening was not so “loose”.However, this year, the situation is likely to change, the RMB against the DOLLAR exchange rate will eventually move closer to the DOLLAR index, which corresponds to the depreciation pressure on the RMB.Huan, chief macroeconomist at Huatai Securities, said the rapid rise in real interest rates on U.S. Treasury bonds in 2022 caused a sharp decline in the “pan tech” sector, which had the largest cumulative inflow but whose valuation is most sensitive to interest rates, and a rapid outflow of funds from U.S. stocks.And in a rare order of magnitude, money has been pulled out of U.S. stocks fast enough to explain the sharp divergence between dollar interest rates and exchange rates.Huan argues that the yuan’s real exchange rate has undergone an “internal depreciation” since 2021 due to significantly lower relative inflation in China, including commodity and asset price inflation. Even at a fundamental level, the nominal exchange rate may no longer need to depreciate.In 2022, THE US CPI is likely to remain significantly higher than China’s, driving the depreciation of the real exchange rate of the RMB, while continuing to release depreciation pressure on the nominal exchange rate of the RMB.Looking ahead, stable growth and stable exchange rates need not conflict.If China’s stable growth policy is put in place later than expected, the volatility of China’s financial assets and related risk premiums rise, and capital flows turn, the RMB may have depreciation pressure on the contrary, which also explains why the LPR lowers the RMB but appreciates.Source: Securities Times · Brokerage China/Long Stay Review: Yu Fanghua