China News Service, September 17th (Xie Yiguan, a reporter from China-News Finance and Economics) After the offshore RMB against the US dollar fell below the 7.0 mark on September 15, on September 16, the onshore RMB against the US dollar also "broken 7", marking a new year for 2020. For the first time since July.
What does RMB exchange rate "break 7" mean?
What impact will it have on daily life, corporate exports and even the capital market?
Will the RMB continue to depreciate?
Onshore RMB/USD chart.
The RMB exchange rate "breaks 7", beyond the reasonable range?
The relevant person in charge of the central bank said in response to the "break 7" of the RMB: the exchange rate of the RMB "breaks 7", this "7" is not age, it will not come back in the past, nor is it a dam, once it is broken through the flood, it will be a thousand miles away; "7 "It's more like the water level of a reservoir, which is higher during the wet season, and then lowers again during the dry season, with ups and downs.
"Such periodic short-term small depreciation is normal, and the RMB exchange rate fluctuates in both directions." Dong Dengxin, director of the Institute of Finance and Securities at Wuhan University of Science and Technology, told reporters that the RMB exchange rate basically fluctuates around 6 to 7, and "breaking 7" is still Within a reasonable range, the RMB exchange rate is still stable.
This "Break 7" stems from U.S. monetary policy?
The RMB exchange rate "breaks 7" again after a lapse of two years. According to Wen Bin, chief economist of Minsheng Bank, it is mainly due to the accelerated tightening of monetary policy by the Federal Reserve to curb high inflation. With the continuous strengthening of the US dollar index, including Most of the non-dollar currencies, including the renminbi, depreciated to varying degrees.
Recently, the Federal Reserve has repeatedly signaled interest rate hikes.
The U.S. CPI rose 8.3% year-on-year in August, exceeding market expectations, and also sparked discussions about raising interest rates in the U.S. market. Recently, the U.S. dollar index has strengthened again.
Sinolink Securities believes that under the continuous divergence of policy interest rates between China and the United States, the yields of 10-year Treasury bonds between China and the United States have inverted again since August 5 and widened rapidly, which also suppressed the RMB exchange rate to a certain extent.
RMB and US dollar infographic.
Photo by China News Service reporter Li Jinlei
Will the falling RMB exchange rate benefit exporters?
In Dong Dengxin's view, "a moderate depreciation of the renminbi may help stimulate domestic product exports. After expanding exports, it will also have a stimulating effect on economic growth."
Sinolink Securities also stated that the devaluation of the renminbi will further enhance the price competitiveness of some industries with a high proportion of exports.
Overseas revenue from export business is also expected to benefit from foreign exchange gains, and the depreciation of the renminbi may further increase the profits of export-oriented companies.
However, Bai Ming, deputy director of the International Market Research Institute of the Ministry of Commerce Research Institute, believes that the devaluation of the RMB exchange rate is also a double-edged sword.
Export companies rely on the depreciation of the RMB exchange rate to increase their income, but if they use too many imported raw materials and components, they may also increase their expenditures due to the depreciation of the RMB exchange rate.
Does the devaluation of the renminbi affect daily life?
In the impression of many people, after the devaluation of the RMB, studying abroad, overseas shopping, etc. will increase the cost.
But if you only stay in the country and buy goods from your own country, will it have little effect?
From a comprehensive point of view, although the depreciation of the RMB against the US dollar has relatively little impact on people's daily life and prices, the world is a unified big market. The rise in the prices of some imported raw materials will increase the production costs of enterprises, which in turn affects commodity prices.
If we buy these goods, the spending will also increase.
However, while the yuan weakened against the dollar, it remained stable against a basket of currencies.
This also means that if we go to study, shop, or pay extra costs in countries that use non-US dollars as the main settlement currency.
A basket of currencies infographic.
Will the depreciation of the RMB against the US dollar affect the stock market?
Ping An Securities believes that both the RMB exchange rate and stock prices are the result of market pricing, and the correlation between the two is more reflected in whether they are affected by the same factors and the cross-influence between the two markets, rather than a causal relationship.
"Among them, economic growth, liquidity, external events, etc. will all affect cross-border capital flows and the expected return of financial assets. The impact of fundamentals and incidental events on the exchange rate and stock market tends to resonate simultaneously, while the impact of liquidity has its own Similarities and differences, in addition, fluctuations in foreign behavior may amplify the volatility of the A-share market to a certain extent." Ping An Securities said.
Although many people worry that the devaluation of the renminbi will lead to capital outflows.
However, data on foreign exchange settlement and sales in August showed that foreign investors' investment in domestic bond and stock markets continued to improve.
Wang Chunying, deputy director and spokesperson of the State Administration of Foreign Exchange, said recently that the net inflow of cross-border capital under trade in goods continued to be relatively large, and the inflow of foreign capital through channels such as direct investment increased steadily.
Is now a good time to buy dollars, gold?
Under the devaluation of the RMB, how to allocate assets, is gold or the US dollar a good choice?
Dong Dengxin said that investment must have a long-term concept, and it is necessary to make judgments from the long-term trend.
"Currently, the RMB exchange rate is still in a stable range, and basically there will not be much change in investors' expectations."
"Gold is pegged to the U.S. dollar, and fluctuations in the price of gold are strongly correlated with fluctuations in the exchange rate of the U.S. dollar. Simply put, as the U.S. dollar appreciates, gold depreciates." Dong Dengxin said that at present, gold is still at a high level. Continue to appreciate, gold may depreciate sharply, so investing in gold is very risky.
Data map: People buy gold jewelry in a shopping mall in Fuzhou.
Photo by China News Agency reporter Lv Ming
"In this special period, cash is king. With cash in hand, you can intervene at a good low point at any time and get considerable returns." Dong Dengxin added.
Will the RMB continue to depreciate?
Wen Bin believes that from the perspective of my country's economic fundamentals, it is expected that the GDP growth rate in the third quarter will rebound significantly compared with the second quarter, the inflation level will be moderate and controllable, and the balance of payments will be in good condition, especially the basic items of the balance of payments such as current account and direct investment. Maintaining a relatively high surplus has laid the foundation for a stable RMB exchange rate and a stable foreign exchange market, and there is no basis for continued devaluation of the RMB.
From September 15, the central bank lowered the foreign exchange deposit reserve ratio of financial institutions by 2 percentage points from 8% to 6%, which is the second time in this round of RMB repair overvaluation.
"After reviewing the operation history of this tool in recent years, it can be seen that adjusting the foreign exchange deposit reserve ratio has a good counter-cyclical adjustment effect." Caitong Securities analyst Li Yuebo said that if the pressure of RMB depreciation continues, the central bank's counter-cyclical adjustment policy There are also counter-cyclical adjustment factors, offshore central bank bills, forward foreign exchange sales risk reserves, and foreign exchange reserves available in the toolbox.
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