Since mid-August, affected by the sharp rise in the US dollar, the RMB has depreciated rapidly against the US dollar, and the offshore RMB exchange rate has recently exceeded 7.2. Generally speaking, the depreciation of the local currency will boost domestic commodities, but domestic commodity prices have been falling recently, which somewhat surprised the market.
In this regard, industry experts believe that the boosting effect of the current RMB devaluation is not enough to reverse the negative impact of declining demand on the commodity market. Demand changes are still the core contradiction of the current trend of commodities. Nonetheless, the stimulus to the economy from the relatively loose domestic monetary environment and the potential boost to exports from devaluation may bring strong support to domestic commodity prices in the future.
RMB depreciates rapidly against US dollar
Wind data shows that as of press time, the offshore RMB exchange rate has fallen to 7.2365 yuan per US dollar, continuing its rapid depreciation against the US dollar, with a cumulative decline of more than 10% since the beginning of the year.
The depreciation of the RMB against the U.S. dollar is mainly affected by the appreciation of the U.S. dollar. With the Federal Reserve continuing to raise interest rates, the U.S. dollar index has risen above 114, hitting a new high in the past 20 years. Non-U.S. currencies are generally under pressure. Although the RMB has depreciated against the U.S. dollar, it has appreciated to varying degrees against currencies such as the euro, Japanese yen, and pound sterling, showing strong resilience.
On September 26, the People’s Bank of China announced that in order to stabilize foreign exchange market expectations and strengthen macro-prudential management, the People’s Bank of China decided to increase the foreign exchange risk reserve ratio for forward foreign exchange sales business from 0 to 0. 20%. From the perspective of the industry, this move by the central bank further releases the signal of “stabilizing the exchange rate”. By increasing the forward foreign exchange sales cost of banks, it will reduce the demand for forward foreign exchange purchases by enterprises, thereby reducing the demand for foreign exchange purchases in the spot market and helping to curb the market. Expectations for RMB depreciation.
When will the commodity market stop falling?
On the one hand, there is the continuous depreciation of the RMB exchange rate, and on the other hand, the domestic commodity prices continue to fall, which is rare in the past.
Relevant data show that domestic commodity prices have been weak recently, with futures prices of cotton, PTA and other varieties hitting new lows since the middle of the year. The Mandarin Commodity Index, which reflects the trend of domestic commodities, was last at around 189, falling back to its position at the beginning of the year. As the king of commodities, international oil prices have dropped from over US$120/barrel to around US$80/barrel, which has contributed a lot to the overall decline in commodity levels.
Yuan Tao, a senior macro analyst at Orient Securities Derivatives Research Institute, said that the pressure for RMB depreciation is currently rising significantly. Global commodities are basically priced in US dollars, so RMB depreciation has a certain boosting effect on commodity prices. However, it should be noted that the background of the current depreciation of the RMB is that the Federal Reserve needs to strongly raise interest rates to combat inflation. This has resulted in a strong US dollar and a significant weakening of global demand, and the performance of non-US currencies has generally been weak. Under the situation of high-pressure policies, the significant increase in expectations for the global economic recession has suppressed the prices of commodities. Therefore, the current commodity market generally shows a downward trend in prices. The impact of RMB depreciation on commodities is reflected in the boost brought by the pricing level. This This effect is not enough to reverse the negative impact of lower demand. Therefore, we see that with the depreciation of the RMB, the overall trend of the commodity market is also downward. It is expected that the continuation of the tightening situation in the fourth quarter will continue to strengthen the US dollar. Therefore, the depreciation of the RMB will have limited boost to commodity prices, and commodities will continue to be negatively affected by reduced demand. host.
Zhou Ji, a macro foreign exchange analyst at Nanhua Futures, pointed out that the recent depreciation of the RMB has been overwhelming, and the current exchange rates of the US dollar against the offshore RMB and the US dollar against the onshore RMB have reached 7.2. Although the People’s Bank of China released a signal to maintain exchange rate stability on September 26, it decided to increase the foreign exchange risk reserve ratio for forward foreign exchange sales from 0 to 20% from September 28, which can temporarily ease the RMB exchange rate to a certain extent. There is a risk of stalling depreciation, but it cannot change the current trend of exchange rate trends. Exchange rate changes will have an impact on commodity prices from aspects such as market structure, policy mechanisms, and supply and demand relations. Generally speaking, as a major importer and consumer of commodities, my country’s current pressure on the depreciation of the RMB exchange rate will weaken our country’s demand for global commodities (energy, industrial metals, agricultural commodities) to a certain extent. Import demand will have a certain inhibitory effect on global commodity prices, because the depreciation of the RMB means a fall in the purchasing power of the RMB. On the other hand, the strength of the U.S. dollar will also exert certain pressure on commodity prices priced in U.S. dollars. However, it should be noted that the price direction of commodities ultimately depends on the supply and demand level. The demand for commodities in the future will focus on the operating conditions of our country’s economy.
Although domestic commodity prices are weak in the short term, some experts caution that we should not be overly bearish as there are still many variables in the supply and demand pattern. “The domestic monetary environment is relatively loose, the pressure on the real estate industry is being released in an orderly manner, relevant major policies may be further adjusted in the future, and the depreciation of the RMB will boost exports to a certain extent, all of which will be beneficial to the economy. Once the economy truly picks up, it may reshape The supply and demand pattern of the domestic commodity market.” Industry insidersScholar pointed out.