however, unlike the devaluation of RMB caused by capital outflow in 215 and 216, the data reflecting cross-border capital flows, including foreign exchange reserves and settlement and sale of foreign exchange, have not repeated the previous big fluctuations this year. Based on the views of many institutions, the strong rebound of the US dollar index in the second quarter, the interference of market sentiment in the last week and the differentiation of monetary policies between China and the United States are the catalysts for this round of RMB depreciation.
reason 1: the strong appreciation of the US dollar index in the second quarter
The return of the US dollar to strength is regarded as the main reason for the current RMB depreciation.
from around 92.25 at the beginning of the year to 94.67 at the close on June 26th, the US dollar index, which measures the US dollar against six major currencies, rose by 2.5%. After the Federal Reserve raised interest rates in June, the US dollar index rushed to the 95 mark several times. On February 16th this year, the US dollar index dropped to 88.2491, which was an appreciation compared with the recent high of 95.5372 on June 21st.
The hawkish speech made by Federal Reserve Chairman Powell recently is the main reason supporting the rise of the US dollar index. On June 2, Powell said that with the economic recovery, the reasons for the Fed to further tighten monetary policy are very strong.
Although the RMB exchange rate depreciated against the US dollar, it kept appreciating against a basket of currencies. The CFETS RMB exchange rate index released by China Foreign Exchange Trading Center, which reflects the RMB exchange rate against a basket of currencies, still kept appreciating in the second quarter, which also shows that the main reason for the weakening of the RMB against the US dollar is the rise of the US dollar index.
"The main reason for the strength of the US dollar index is that the US economy continues to pick up under the stimulus of tax cuts, while the strong recovery in the euro zone and Japan last year began to weaken this year. On the basis of the differentiation of economic performance, inflation expectations in the United States continue to heat up, while the European economy is also disturbed by political risks, resulting in differences in monetary policy tendencies between the United States and Europe. The spread of 1-year treasury bonds in the United States, Europe, and the United States and Japan has increased by 6BP and 5BP respectively compared with the beginning of this year, and the attractiveness of US dollar assets has been further enhanced, which has also pushed the US dollar higher. " Jiang Chao pointed out.
"(US dollar index) can't see the possibility of breaking through 1 in the short term, but there is still room for upside, and all short-term pressure on RMB may continue." A foreign exchange trader of a large state-owned bank said.
reason 2: foreign exchange supply is less than demand and emotional fluctuation
the supply and demand situation in the foreign exchange market is also regarded as an incentive for the current round of depreciation.
China Merchants Securities believes that only a quarter of the RMB depreciation in the last week was due to the appreciation of the US dollar, while the supply of foreign exchange was less than the demand, and the exchange rate weakened. Supply and demand factors can explain 75% of the RMB exchange rate depreciation. The marginal change of foreign exchange supply and demand is not only disturbed by the violent fluctuation of domestic stock prices and the panic caused by various rumors in the foreign exchange market, but also influenced by the demand for foreign exchange purchase caused by capital outflow in the capital market.
"In recent days, the domestic market is basically driven by foreign countries, and the sentiment of buying foreign exchange in the market is obviously higher than before. Although it can't be compared with that in 215 and 216, the market has also formed the expectation that the RMB will depreciate sharply, but the RMB may still be under pressure." The foreign exchange traders of the above-mentioned state-owned big banks also said that if the RMB falls rapidly against the US dollar, the market participants who are willing to settle foreign exchange may choose to continue to wait and see and wait for a better price. However, if the decline slows down, the market settlement is expected to be released in large quantities, and the decline will also be limited.
Huachuang Securities also believes that the current pessimistic expectation is more emotional: "We tend to think that after the recent pessimistic sentiment is concentrated, the RMB will return to the normal state of following the passive fluctuation of the US dollar."
reason 3: China and the United States have quietly changed their monetary policies
After the Federal Reserve started raising interest rates for the second time this year on June 14th, the Bank of China did not choose to raise the open market interest rate as expected in the open market operation on June 15th, but chose to stay put.
Subsequently, the central bank offered another sacrifice to targeted cuts to required reserve ratios, and the amount of funds released greatly exceeded the previous two times this year. The market tends to think that the domestic monetary policy will return to neutral and loose.
Guotai Junan believes that the intraday trading in recent trading days has been devalued greatly, which coincides with the announcement of targeted cuts to required reserve ratios at the the State Council meeting on June 2th, indicating the dislocation of the monetary policy cycles between China and the United States, which has intensified the pace of exchange rate depreciation.
Jiang Chao believes that, in contrast, inflation in the United States is expected to rise steadily. It is expected that the Federal Reserve will raise interest rates twice this year, and the monetary policies of China and the United States will be divided in the short term. In his view, the narrowing of the spread between China and the United States is also one of the reasons for this round of RMB depreciation. "Since the beginning of this year, the yield of China's 1-year government bonds has continued to decline, while the yield of US 1-year government bonds has continued to rise, and the spread between China and the United States has gradually narrowed to more than 6 BP. The narrowing of the spread will also exert downward pressure on the RMB exchange rate."
However, Guotai Junan believes that compared with the previous devaluation, the central bank has changed its guiding ideology and behavior in exchange rate operation. It no longer bears the burden of so-called "marketization", but uses counter-cyclical factors and other means when necessary to enhance its control over the central parity. In this case, it should not be overly pessimistic about the RMB exchange rate, and the probability of breaking the previous high or even breaking 7 during the year is very small.