(Year-end Economic Observation) "Breaking 7 to 6", can the RMB exchange rate continue to rise in 2023?

  China News Agency, Beijing, December 31 (Reporter Xia Bin) First "broke 7" and then "returned to 6". The increasingly flexible exchange rate of RMB against the US dollar will increase in two-way volatility in 2022, out of "two falls and one rise".

  Judging from the range of volatility during the year, the gap between the highest and lowest spot exchange rates of the onshore and offshore RMB against the US dollar in the foreign exchange market exceeded 10,000 basis points. Such two-way fluctuations demonstrate the resilience of the RMB. The role of the automatic stabilizer in adjusting the balance of payments is more obvious, and it can release external pressure in a timely and effective manner.

  According to data from the China Foreign Exchange Trading Center, on the last trading day of 2022, the central parity rate of the RMB against the U.S. dollar was reported at 6.9646, with a cumulative depreciation of 5,889 basis points for the year, a depreciation rate of over 9.23%. largest depreciation ever.

  Although it closed down for the whole year, judging from the trend, the RMB regained its strength at the end of the year.

From mid-April to mid-May this year was the first wave of decline. At that time, it fell below 6.8, and there was a phased low. From mid-August to the end of October was the second wave of decline. During this process, it fell below 7 in September and fell below 7 in October. It broke 7.3, the lowest value since 2008.

  From the end of November, the renminbi rebounded sharply, and rose back to the 6 range in early December. On December 30, the exchange rate of the renminbi rose rapidly in the foreign exchange market. Among them, the spot exchange rate of the onshore renminbi against the US dollar rose above 6.9, closing at 6.8972.

  Not only the renminbi, but also major currencies in the world have experienced varying degrees of depreciation against the U.S. dollar this year. One of the reasons is that the U.S. dollar has soared this year. In the course of monetary tightening in which the Fed raised interest rates frantically, the U.S. dollar index hit its highest value since 2003. There is already a callback.

  As Pan Gongsheng, deputy governor of the People's Bank of China, said before, compared with the previous two periods of dollar appreciation, the RMB exchange rate has become less sensitive to fluctuations in the U.S. dollar index since 2021.

From a global perspective, compared with major developed and emerging market currencies, the depreciation of the RMB is at an average level.

Although there were fluctuations in cross-border capital flows, they were generally stable and orderly.

  So, will the yuan's rally at the end of this year continue into next year?

Chen Hongbin, chief economist of Pengyang Fund, believes that the rise in the renminbi that began at the end of November this year may not be a short-term adjustment fluctuation, but a trend rise, and the renminbi may rebound next.

  In his view, the above judgment is mainly based on two reasons.

First, the short-term problems in domestic real estate and the epidemic will gradually improve and be resolved by next year. Second, the leading indicators of the US economy may experience a sharp decline in the second and third quarters of next year.

Therefore, the fundamentals of China and the United States may be misaligned next year, and the renminbi may start a new upward cycle.

  Zheng Houcheng, director of the Yingda Securities Research Institute, told reporters from China News Agency that from the perspective of four factors, the pressure of RMB exchange rate appreciation in 2023 will be greater than the pressure of depreciation.

  First of all, from the perspective of the macroeconomic fundamentals of China and the United States, in 2023, China will be in the stage of transition from active destocking to passive replenishment, while the United States will be in the stage of active destocking. China's macroeconomic fundamentals are ahead of the United States.

  Secondly, from the perspective of monetary policy trends, in the context of the U.S. ISM manufacturing PMI continuing to be below the boom-bust line and the U.S. long-term and short-term interest rate inversions, the Fed is likely to cut interest rates in the third to fourth quarters of 2023, and the U.S.-China interest rate gap is highly likely to Narrowing, bullish the RMB exchange rate.

  Third, judging from the trend of the U.S. dollar index, the U.S. dollar index is at the top of the cycle. As the U.S. macro economy is under pressure and the Federal Reserve cuts interest rates, a downturn in the U.S. dollar index is a high probability event.

  Finally, from the perspective of the RMB exchange rate cycle itself, the current RMB exchange rate is in the bottom range of the third cycle since the "8.11 exchange rate reform", and later appreciation is a high probability event.

  Wang Tao, director of Asian economic research and chief China economist at UBS, believes that the US dollar may strengthen in early 2023 with certain fluctuations, which also means that the RMB exchange rate may weaken in early 2023 and there will also be certain fluctuations.

However, China's trade surplus will remain roughly stable in 2023, and considering that the Federal Reserve is expected to start cutting interest rates in the second half of 2023, and as China's economy restarts and continues to recover, market sentiment is expected to drive the appreciation of the yuan against the US dollar in the second half of next year.

  Wang Tao said that taking into account market developments, the forecast for the RMB-US dollar exchange rate by the end of 2023 has been adjusted from the previous 7.1 to 6.8.

(use up)