Since 2020, with the continued deterioration of the epidemic and the trade environment, many industries have suffered a heavy blow, especially the dual impact of exchange rates and sea freight. Now, with the exchange rate and sea freight declining, have the orders of textile foreign traders improved?
Offshore RMB exchange rate fell below 7.27 against the US dollar
Is the soaring exchange rate really beneficial to textile foreign trade companies?
On the evening of October 19, the exchange rate of RMB against the US dollar fell below the previous low in the offshore market.
More reflecting the expectations of international investors, the offshore RMB exchange rate against the U.S. dollar fell below 7.23, 7.24, 7.25, 7.26 and 7.27 on October 19, falling to an intraday low of 7.2731, a drop of more than 400 points from the previous trading day. , and refreshed the intraday low of 7.2675 on September 28.
While the offshore yuan fell against the U.S. dollar, the U.S. dollar index soared. On October 19, the U.S. dollar index rose to an intraday high of 112.9943, an increase of more than 0.75% from the previous trading day.
Data released by Eurostat on October 19 showed that the Eurozone consumer price index (CPI) increased by 1.2% month-on-month and 9.9% year-on-year in September. After the data was released, the euro fell more than 0.8% against the US dollar, as low as 0.9759.
The next Federal Reserve interest rate meeting will be held on November 1. The market expects to raise interest rates by 75 basis points and waits for the performance of the RMB exchange rate.
Compared with the 6.7 a few months ago, the price increased by almost 8%. I believe that sellers with US dollars in their hands were excited and calculated how many percentage points their profits had increased. However, is the soaring exchange rate really beneficial to textile foreign trade companies?
First of all, we need to understand what is the reason for the rise in the US dollar exchange rate? The fundamental reason is that in order to reduce inflation in the United States, the Federal Reserve has adopted aggressive tightening policies and has continuously raised interest rates, which has led to an increase in the exchange rate of the U.S. dollar against other currencies around the world. So what are the possible consequences of this operation?
As the Federal Reserve continues to raise interest rates, and domestic inflation in the United States continues to rise, it also means that high domestic prices in the United States have not been fundamentally resolved. Some people believe that after interest rates are raised, the cost of using funds for enterprises will increase, which will in turn cause many enterprises to be unable to survive and the unemployment rate will continue to rise. Policymakers expect the unemployment rate to rise to 4.4% by the end of next year. Rising prices coupled with rising unemployment will inevitably lead to a decline in consumption power.
Secondly, the Federal Reserve’s continued interest rate hikes will also lead to an increase in savings interest rates, and will also lead to an increase in consumer loan interest rates. Everyone on earth knows that the United States advocates consumption in advance. As a result, the interest rate on consumer loans will rise, which will inevitably affect consumption ability.
Third, as interest rates rise, the monthly mortgage payment for a moderately priced existing home has increased by nearly 60% this year. Rising mortgage loans and rents are also squeezing consumers’ spending power, and this situation will not ease at least in the next few months.
Ocean freight prices are expected to return to 2019 levels by the end of the year
In addition, shipping market prices have also shown a downward trend. Last year, international shipping was still “hard to find” and prices were “skyrocketing”. This year, the temperature has suddenly cooled down. Recently, the price of shipping has dropped to a new low for the year.
According to the latest research report by HSBC, at the current rate of decline in spot freight rates, freight rates may fall to 2019 levels as early as the end of this year, while HSBC’s previous time point was mid-2023. .
According to the report, by tracking the Shanghai Export Container Comprehensive Freight Index (SCFI) released by the Shanghai Shipping Exchange, the index has fallen by 51% since July this year, with an average weekly decline of 7.5%. If freight rates continue to fall, this index will fall back to pre-pandemic levels.
HSBC said that the recovery of shipping capacity after China’s Golden Week holiday will be one of the key factors that determine “whether freight rates will stabilize soon.” It also added that some future market changes and potential directions may be seen in the liner company’s upcoming third-quarter performance report.
It is understood that container freight rates have been falling recently, mainly due to the weakening demand for space due to the epidemic, inflation, terminal destocking, etc. However, under the condition of stable supply, there is an oversupply of space, which not only leads to weakening spot freight rates, but also Put pressure on long-term freight rates.
Industry insiders are worried that the U.S.’s decision to raise interest rates in order to curb inflation has triggered many central banks to follow suit, which may lead to an economic recession that will have a negative impact on the global container shipping market. Container ships mainly carry consumer goods for people’s livelihood. This round of inflation caused by energy and food has led to the weakening of consumer purchasing power, and the demand for container transportation has also decreased.
Some people in the industry believe that the depreciation of the RMB is good for foreign trade exports, but combined with the current market environment and demand, it has not played a beneficial role. The market demand is not strong. Although foreigners have money, their crazy replenishment in the early stage of the epidemic has caused the current situation. The inventory backlog is serious, and they don’t have much food left now. The impact of the Russia-Ukraine war has made Europe pay more attention to energy and other urgent needs, while consumption has been relatively unable to keep up. Now the entire market environment is sluggish, and it is not just the depreciation of the RMB that can drive this growth, but also the reduction of sea freight. If the market’s consumption power is weak and demand power is reduced, there will be no healthy rolling development of the entire market.
The above various opinions and information all indicate that in the future period, under the comprehensive action of various factors,In this situation, the consumption power of major economies such as Europe and the United States will severely decline, and the future development direction is full of uncertainty. Textile people should be more cautious in dealing with various problems that may occur in the future.
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