SMM News: on May 13, the RMB exchange rate against the US dollar at 6.7954, 42 basis points lower than the previous value. At 16:30 on the 13th, the official closing price of the onshore RMB against the US dollar was 6.8721, the lowest level since early January, and the offshore RMB exchange rate also fell below the important 6.90 mark. Some institutions reported that changes in the external environment have a greater impact on market sentiment, the RMB exchange rate is under short-term pressure, but is not expected to continue to depreciate significantly.
Last week (May 6-10), with the twists and turns in the Sino-US economic and trade negotiations, the pressure on the devaluation of the renminbi intensified. The renminbi depreciated by 752 basis points against the dollar at the spot rate throughout the week, down 1.1%, the biggest drop in nearly 10 months. The latest CFETS exchange rate index calculated by the China Foreign Exchange Trading Center on May 10, 2019 was 94.79, down 0.84 per cent from the previous week.
"the recent devaluation of the renminbi is mainly the result of market forces." Minsheng Securities Chief Macro analyst Xie Yunliang said that after analyzing the devaluation of the renminbi last week, it can be found that the midpoint contributed 451bp to appreciation and the closing price contributed 1203 basis points to devaluation. It can be seen that the main driving force of this round of devaluation is still market forces, not policy factors. According to Xie Yunliang's further analysis, judging from the average monthly price difference between the closing price and the median price, it has reached 240 basis points since May, second only to the month when the "August 11 exchange rate reform" was launched in 2015 (234 basis points). However, it exceeded the level (up to 124 basis points) when Sino-US trade frictions escalated between June and October 2018. This shows that, from the perspective of market forces, the RMB is still facing devaluation pressure.
Ping an Securities Research News said that a review of the trend of the RMB exchange rate against the US dollar since the beginning of 2019 can be described as "twists and turns". From the beginning of the year to the end of February, the RMB exchange rate against the US dollar climbed from 6.86 to 6.69, an appreciation of 2.5%. From the end of February to the middle of April, the RMB exchange rate against the US dollar showed a trend of horizontal consolidation, with a central level of about 6.70. Between mid-April and early May, the renminbi depreciated from 6.70 to 6.79 against the dollar, or about 1.5 per cent.
So, judging from the current situation, will there be a sharp devaluation of the RMB? Xie Yunliang said that the current foreign exchange market expectations of the depreciation of the RMB is not high. The RMB non-deliverable forward contract (NDF) shows that the offshore market expects the RMB exchange rate to be 6.87 to 6.88 in one year's time, depreciating by less than 500bp on the basis of the current exchange rate. The expectation of devaluation is at the low level since the "8 / 11 exchange rate reform". Looking back at January 2016 and January 2017, the expected depreciation was more than 2800 basis points and 3100 basis points, respectively. The current round of market sentiment is less affected by news than in June 2018, and the rate at which the dollar is rising against the renminbi is relatively manageable, according to the Societe Generale research report.
From a fundamental point of view, some analysts say that the current fundamentals of the RMB exchange rate are better than the third quarter of 2018. In recent months, the performance of China's real economy has improved significantly, with PMI continuing to expand at 50.1% in April, and social financing increased by 8.18 trillion yuan in the first quarter, the highest level in history in the same period.
From the perspective of cross-border capital flows, Ping an Securities said that the situation of cross-border capital flows facing China has improved significantly since the beginning of the year. Both the balance between settlement and sale of foreign exchange by banks and the difference in foreign collection and payment by banks on behalf of customers were significantly better in the first half of 2019 than in the second half of 2018. In terms of balance of payments, in the first quarter of 2019, China maintained a current account surplus, continued net inflow of direct investment and securities investment, stable increase in reserve assets, and maintained a basic balance of payments. This is why the renminbi continued to appreciate against the dollar in the first quarter of 2019 against the backdrop of a stronger dollar index.
Regulators have repeatedly stressed that there will be no competitive devaluation and will not use the RMB exchange rate as a tool to deal with external disturbances such as trade disputes. Han Huishi, a foreign exchange expert, said: "the RMB exchange rate has fluctuated sharply over the past few years. Although China's foreign exchange reserves have fallen by US $1 trillion, they have also gained a lot of valuable experience. One of them is that in the environment of weak global market expansion and increasingly fierce international game, the role of exchange rate depreciation in stimulating exports is not significant, but the negative impact on public confidence is very strong. " Xie Yunliang said that a sharp devaluation of the renminbi will bring at least three side effects: first, the revaluation of RMB asset prices, second, the basis for the internationalization of the renminbi, and third, the interests of other trading partners.
Hanhui believes that the more complex the international environment, the more need to ensure the stability of market confidence. In the face of sudden fluctuations in market sentiment and the absence of a serious imbalance between cross-border capital flows and the overall balance of payments, a more prudent strategic choice is to strengthen the monitoring of capital flows. We will continue to maintain strict management of cross-border capital flows.