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The Value Of The RMB Against The Dollar In One Month Is Nearly 3%
- Aug 08, 2018 -

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6.6, 6.7, 6.8! This is the trend of the RMB exchange rate against the US dollar in the past July.

Daily economic news (micro signal: nbdnews) reporter noted that in July, the central parity of RMB against the US dollar fell by 2.93%. Generally speaking, a national currency devaluation is often accompanied by capital outflows, and the central bank may also use external reserves to support the exchange rate, which will eventually lead to a decline in foreign exchange reserves.

But the July foreign exchange reserve data released by the central bank yesterday (August 7th) showed that the foreign exchange reserve at the end of the month was 3 trillion and 117 billion 946 million dollars (the market is expected to be $31070 billion), up 5 billion 817 million US dollars from the end of the month, for second months in a row. The further growth of foreign exchange reserves has helped to boost the market. After the release of the data, the exchange rate of the RMB was steadily rising. As of press release (7 days, 23 hours), the offshore market RMB 6.8318 against the US dollar, and appreciated 339 basis points within the day.

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After the central bank released data on foreign exchange reserves in July, offshore renminbi trend

The head of the State Administration of foreign exchange explained during the July external storage data:

In July, cross-border capital flows in China were generally stable, and supply and demand in the foreign exchange market were basically balanced. In the international financial market, the dollar index is basically flat with the end of last month, the price of financial assets fluctuates slightly, the main non dollar currency exchange rate and the change of asset price are combined, and the scale of foreign exchange reserves is steadily rising.

The flexibility of RMB is obviously enhanced

The daily economic news (nbdnews) noted that the July dollar index rose only slightly by 0.1%, while the world's major currencies, such as the euro, the yen and the pound, had no significant changes to the dollar. In addition, the yield curve of US Treasury bonds rose slightly in July, and the 10 year return rate at the end of the month was 2.9598%, and the bond valuation factors had a slight negative impact on our foreign data.

E Yongjian, chief financial analyst at the financial research center of the Bank of communications, said that in the case of little influence on exchange factors and slightly negative impact of bond valuation factors, the increase in external storage in July showed that the current cross-border capital flow situation was generally stable and the capital kept a net inflow trend.

Despite the more devaluation of the RMB against the US dollar since July, Cheng Shi, the chief economist for the industrial and silver international, believes that the current market and central bank still have quite a tacit agreement, and the trend of the renminbi has not been out of control. Both the forward premium and offshore exchange rate spreads are quite different from the strong expectation of RMB devaluation at the end of 2016.

Cheng said that the long and short term operation of the RMB exchange rate after the "811 remittance reform" has a "anchor", and the market expectation tends to be rational so that the short-term depreciation has not caused a significant change in expectation. After the 811 exchange rate reform, the long-term exchange rate policy and monetary policy were driven by the economic fundamentals of our country, and formed a new relationship of "sharing the benefits and losses". The calculation shows that after the devaluation in July, the effective exchange rate of RMB against a basket of currencies has been in equilibrium or even slightly undervalued level. Under such circumstances, the expected management of the central bank will have the ability and conditions to stabilize short-term market sentiment.

The head of the State Administration of foreign exchange also said that since this year, the volatility of the international financial market has increased, the dollar exchange rate and interest rate "double liter", some emerging economies have been greatly impacted, the global trade frictions have intensified, and the complexity and uncertainty of the external environment have increased significantly. In this context, China's economy remains stable in general, stable in the middle, to prevent and dissolve financial risks to achieve preliminary results, to optimize the economic structure, the overall stability of the foreign exchange market and the flexibility of the RMB exchange rate.

Net inflow trend of capital continuity

The increase in foreign exchange reserves in July exceeded market expectations, but it has already been reflected in other economic indicators.

For example, the previous day (August 6th), the State Administration of Foreign Exchange announced the two quarter and the first half of the first half of the balance of payments shows that the two quarter of China's current account surplus of 36 billion 900 million yuan. Among them, the trade surplus of the balance of payments is 104 billion 200 million US dollars, and the trade deficit of services is US $73 billion 700 million. Travel, transportation and intellectual property fees remain the main deficit. In addition, the non-reserve financial account surplus of $18.2 billion in the second quarter continued the trend of net inflow of cross-border capital since the first quarter of 2017.

E Yongjian analysis that the future is affected by the devaluation of the RMB, capital and financial accounts may face certain pressure, but on the whole, the cross-border capital flows are expected to remain basically stable, and there is no large-scale outflow of funds.

2018080808330554.jpgPan Xiangdong group of new era Securities believes that the RMB is still under pressure of depreciation, but the depreciation expectation is significantly reduced. Under the background of the division of monetary policy between China and the world's major economies, especially the United States, the pressure of RMB depreciation is lingering. With the pressure of RMB depreciation gradually released, the current 1 year NDF implicit depreciation expectation is reduced to a low point in the year.2018080808333620.jpg

It is worth mentioning that China's central bank announced on Friday: "Since August 6, 2018, the foreign exchange risk reserve ratio of forward foreign exchange sales will be adjusted from 0 to 20%. Central Bank officials said that the recent trade frictions and changes in the international exchange market and other factors, the foreign exchange market showed some signs of pro-cyclical fluctuations. Next, the central bank will continue to strengthen the monitoring of the foreign exchange market. According to the development of the situation, effective measures should be taken to adjust the counter cycle, maintain the smooth operation of the foreign exchange market and maintain the basic stability of the RMB exchange rate in a reasonable equilibrium level.

Some analysts believe that the central bank's move basically blocked the recent depreciation of the renminbi. On the one hand, empty heads need to pay higher costs. On the other hand, in the long run, whether the RMB will depreciate depends on the trend of the US dollar and the follow-up process of the trade war, there is uncertainty.

Huatai Securities macro researcher sun o analysis pointed out that the recent exchange rate devaluation is mainly affected by trade frictions and changes in international exchange markets. The central bank's move is intended to maintain the smooth operation of the foreign exchange market through counter cyclical regulation. The exchange rate is the intermediate target of the monetary policy of the central bank, and the balance of payments is the ultimate goal. The central bank has no exchange rate point to be guaranteed. The ultimate goal of the regulation and control of the exchange rate is to achieve the goal of balance of payments. Therefore, the lower limit of the exchange rate devaluation is the obvious outflow of capital. The central bank has stepped up counter-cyclical regulation and control. It is expected that the RMB exchange rate will stabilize in the near future and the situation of continued rapid devaluation will be curbed.