On August 8, the offshore RMB exchange rate against the US dollar fell below the 7.21, 7.22, 7.23 and 7.24 levels during the session, falling nearly 400 points within the day. The intraday decline once exceeded 0.5% and hit a new low in the past month.
On August 9, the central parity rate of the RMB against the US dollar was reported at 7.1588 yuan, 23 basis points lower than the previous value. The opening price of the onshore RMB against the U.S. dollar on August 9 was 7.2184, and the closing price on the previous trading day was 7.2133; the intraday opening price of the offshore RMB against the U.S. dollar was 7.2372, which was basically the same as the closing price on the previous trading day.
At the same time, with the end of the downward revision of the Federal Reserve’s interest rate hike expectations, the strong economic situation in the United States and the weak Europe supported the dollar index bottoming out and rebounding. On August 8, the U.S. dollar index showed a strong rise, rising from a low of 102.05 to 102.6, with an intraday increase of more than 0.5%.
How will the exchange rate go in the future? The industry believes that it is currently at a critical point in the long-short game.
Let’s first take a look at what happened in the past month.
Since the RMB exchange rate against the U.S. dollar hit a stage low of 7.2730 on June 30, the RMB exchange rate has begun to fluctuate and rise.
Affected by factors such as the inverted interest rate differential between China and the United States, seasonal demand for foreign exchange purchases, and divergent monetary policies, the RMB exchange rate strengthened significantly in July, and generally showed a fluctuating upward trend within the range of 7.1265 to 7.2620.
Among them, the onshore RMB exchange rate rose from 7.2620 to 7.1645, a cumulative increase of 975 basis points; the RMB central parity rate increased from 7.2258 to 7.1338, a cumulative increase of 920 basis points; the offshore RMB exchange rate rose from 7.2677 to 7.1534, a cumulative increase of 1,143 basis points .
The replenishment of the RMB exchange rate this month is seen more as the result of policy guidance and the weakening of the US dollar index.
From the perspective of policy guidance, on the one hand, the central parity quotation of RMB against the US dollar has been stronger than market forecasts for many days, triggering speculation about whether the quotation is regulated by countercyclical factors; on the other hand, the macro-prudential adjustment parameter for cross-border financing has recently been raised to 1.5 At a record high, the People’s Bank of China also made it clear that it “resolutely prevents fluctuations in the exchange rate,” reflecting the official’s clear intention to stabilize the exchange rate.
On July 24, the Political Bureau of the CPC Central Committee held a meeting to analyze and study the current economic situation and plan economic work for the second half of the year. It rarely mentioned the exchange rate and made it clear that “the RMB exchange rate must be basically stable at a reasonable and balanced level.”
At such a high-profile meeting, the “topic” that the RMB exchange rate should be basically stable was widely interpreted by the outside world as an important policy signal for the stabilization of the RMB exchange rate in the second half of the year.
On August 1, the People’s Bank of China and the State Administration of Foreign Exchange held a work conference for the second half of 2023. In terms of “strengthening and improving the supply of foreign exchange policies and maintaining the stable operation of the foreign exchange market,” the meeting proposed to pay close attention to cross-border capital fluctuations, strengthen macro-prudential management and anticipatory guidance, and keep the RMB exchange rate basically stable at a reasonable and balanced level.
Wang Youxin, a senior researcher at the Bank of China Research Institute, believes that we are currently at a critical point in the long-short game. It is normal for the exchange rate to fluctuate in a range, and it is also a necessary stage before ushering in an inflection point. It is expected that after entering the fourth quarter, as the domestic economic recovery accelerates, economic growth momentum picks up, and the downward pressure on the European and American economies increases, the stability of the RMB exchange rate will increase and more of the RMB exchange rate will show a steady recovery trend.
Zhang Ming, deputy director of the Institute of Finance of the Chinese Academy of Social Sciences and deputy director of the National Finance and Development Laboratory, believes that the main factors expected to dominate the trend of the RMB exchange rate against the US dollar in the second half of the year are still internal factors. Under the optimistic scenario, the exchange rate of RMB against the US dollar will bottom out and reach 6.6-6.8 by the end of the year; under the pessimistic scenario, affected by changes in the external environment, the exchange rate of RMB against the US dollar is expected to be around 7.2 by the end of the year.