Yesterday, the offshore Chinese yuan fluctuated significantly against the US dollar, and today the central parity rate of the Chinese yuan against the US dollar dropped by 107 points, hitting a new low since August 19th. Experts say that a downgrade does not mean that the central bank will default to further depreciation of the renminbi. The recent adjustment of the central bank to the middle price is close to the market price, which may be due to the possibility of regulatory measures being discontinued or weakened to counter cyclical adjustment factors. In recent times, the internal depreciation pressure of the renminbi has decreased, which is an important reason why regulators do not need to focus on controlling the depreciation of the renminbi against the US dollar through the middle price.
Experts also stated that in the short term, the trend of the US dollar and the pace and scale of the domestic package of incremental policies are still the dominant factors affecting the exchange rate of the Chinese yuan. As the possibility of Trump's election victory increases, the pressure on the depreciation of the Chinese yuan against the US dollar is also rising. However, driven by the rebound of domestic economic growth momentum, the RMB will still be in a relatively strong position overall.
The central parity rate of the Chinese yuan fluctuates with market prices, and countercyclical adjustment factors may be discontinued
Today, the central parity rate of the Chinese yuan against the US dollar was lowered by 107 points from the previous day to 7.1390, hitting a new low since August 19th.
Yesterday, the offshore Chinese yuan experienced significant fluctuations against the US dollar, reaching a high of 7.1640 and closing at 7.1415. Wang Yang, General Manager of Beijing Huijin Tianlu Risk Management Technology Co., Ltd., believes that the central bank's adjustment of the middle price today is close to the market price.
Yesterday, the CEOs of Wall Street Bank, Goldman Sachs, Morgan Stanley, Carlyle, Standard Chartered, and State Street Bank all voted against the Fed's two further interest rate cuts in the next two months of this year. Therefore, market expectations have begun to shift towards the possibility that the Fed may only cut interest rates once in the last two months, leading to further appreciation of the US dollar, "Wang Yang told reporters from Caixin.
The Caixin reporter noticed that in the past two months, there has been a significant fluctuation in the central parity rate of the Chinese yuan against the US dollar, which is closer to the market price. Several industry experts believe that regulatory authorities may have stopped or weakened countercyclical adjustment factors in the near future.
Due to the central bank's management of the RMB exchange rate tending towards increasing the flexibility of exchange rate fluctuations, and the recent interweaving of various domestic and foreign factors, the fluctuation range of the RMB exchange rate itself has significantly expanded compared to a few months ago. In this process, the central parity rate has also experienced significant fluctuations along with the RMB exchange rate, "foreign exchange expert Zhang Tianlai told Caixin reporters.
Wang Qing, Chief Macro Analyst of Dongfang Jincheng, also told Caixin reporters that the recent adjustment of the central parity rate of the RMB exchange rate has been significant, mainly due to the upward fluctuation of the US dollar index. The RMB has shown some passive depreciation momentum against the US dollar, and the regulatory authorities are guiding the appropriate release of this depreciation momentum.
With the gradual implementation of a package of incremental policies in China, there will be a significant improvement in economic growth in the fourth quarter, and the internal depreciation pressure of the RMB will actually decrease. This is an important reason why the regulatory authorities do not need to focus on controlling the depreciation of the RMB against the US dollar through the middle price. Wang Qing pointed out that since October, the decline in the RMB exchange rate has been significantly lower than the rise in the US dollar. Recently, the three major packages of RMB exchange rate indices, including CFETS, which represent the overall exchange rate level, have steadily risen.
Wang Yang emphasized that the reduction of the central parity rate of the Chinese yuan against the US dollar is basically in line with market reactions, and does not mean that the central bank will default to further depreciation of the Chinese yuan.
What is the solution to the pressure of RMB depreciation against the US dollar as the "Trump" deal heats up?
From the trend of the Chinese yuan against the US dollar, with the possibility of Trump's election victory increasing and the expectation of further interest rate cuts by the Federal Reserve weakening compared to before, the pressure for the depreciation of the Chinese yuan against the US dollar continues to rise, "Wang Yang also pointed out.
Wang Qing believes that in the short term, the trend of the US dollar and the pace and scale of the domestic package of incremental policies are still the dominant factors affecting the exchange rate of the RMB.
At present, we are in the early stage of the Federal Reserve's interest rate cut cycle, and the probability of the US dollar index continuing to rise significantly is relatively small. However, the domestic package of incremental policies is still being released, and the RMB will continue to receive strong support. From this perspective, although the RMB may have some passive depreciation momentum against the US dollar in the future, the possibility of a significant weakening in the fourth quarter is unlikely, and it will still be in a relatively strong operating trend compared to other non US currencies, "Wang Qing emphasized.
Last week, Trump's approval ratings in seven key swing states showed a significant increase, driving the "Trump" deal to continue heating up. What impact will this have on the Chinese yuan exchange rate?
Wang Qing stated that behind the "Trump deal" is the increased uncertainty in the international political and economic environment that Trump's presidency will lead to, and the risk aversion demand tends to drive the US dollar index upwards. This will bring some passive depreciation momentum to the RMB in the short term. However, even if the "Trump deal" drives the depreciation of the Chinese yuan against the US dollar, the possibility of domestic regulators implementing strong policies to stabilize the foreign exchange market is unlikely. Behind it is the recovery of domestic economic growth momentum that will drive a basket of RMB exchange rate indices such as CFETS to remain stable and even rise, and the overall position of the RMB will still be relatively strong.
In the short term, under the resonance of interest rate cuts and seasonal foreign exchange settlement demand, the pressure of RMB depreciation will be significantly reduced at least by the end of this year and the beginning of next year, "said Wen Bin, Chief Economist of Minsheng Bank.
UBS recently pointed out that regardless of who wins the presidential election on November 5th, concerns about the US Treasury may put pressure on the US dollar. The US dollar may strengthen due to Trump's return to power, but it is expected that this strength will weaken over time. The potential impact of tariffs on US consumption and GDP may be greater than the impact on other regions, and tax cuts may also raise deficit concerns.