The Paper reporter Chen Yueshi

　　After the start of a strong appreciation in 2023, as the "foreign exchange settlement tide" before the Spring Festival comes to an end, how the exchange rate of the RMB against the US dollar will go in the Year of the Rabbit has become the focus of market attention.

　　On the last trading day of the Year of the Tiger, the spot exchange rate of RMB against the U.S. dollar closed at 6.7740 at 16:30 on January 20. The cumulative appreciation in 14 trading days in 2023 was 1774 basis points, an increase of 2.55%. The central parity rate against the U.S. dollar has appreciated by 2.79%.

Why the strong appreciation at the beginning of the year

　　The yuan's strength against the U.S. dollar to start 2023 is a continuation of last November's rally.

On January 16, the spot exchange rate of RMB against the US dollar once rose above 6.69 in the intraday session. Compared with the low point of 7.3228 in early November 2022, the rebound reached 8.6%.

　　Regarding the reasons for the rapid appreciation of the RMB exchange rate in the short term, Guotai Junan attributed it to the reversal of Sino-US economic and policy expectations, the slowdown of capital outflows, and the acceleration of appreciation catalyzed by the "foreign exchange settlement tide" before the Spring Festival. Specifically:

　　One is the rapid reversal of Sino-U.S. economic and policy expectations. China's economic outlook has exceeded expectations, while the U.S. economic outlook has fallen beyond expectations, and the slowdown in U.S. tightening policies has gradually been confirmed.

China's economy is expected to open up space under the catalysis of real estate policies and the adjustment of epidemic policies, while the US economic recession is expected to be rapidly fermented by the impact of the service industry.

In terms of policy, the Fed’s slowdown in raising interest rates has confirmed that the US dollar index has fallen, which has also brought about a passive appreciation of the RMB exchange rate from a pricing perspective.

　　Second, the interest rate of China's bonds has risen under the expectation of recovery, and the interest rate of U.S. bonds has fallen under the expectation of recession.

The inversion of interest rates between China and the United States has narrowed overall since November 2022, and net outflows under the capital and financial account have slowed down.

　　The third is the arrival of the "foreign exchange settlement wave" before the Spring Festival, further intensifying the pressure on the short-term appreciation of the RMB.

Generally, there is a seasonal phenomenon of "consolidation tide" one or two months before the Spring Festival.

　　Huafu Securities believes that there are two main reasons for the rapid appreciation of the RMB since January:

　　First, the speed at which the domestic epidemic has fallen from its peak has exceeded market expectations.

Since the rapid spread of the domestic epidemic in December last year, the market’s speculation on the duration of the peak of the current round of the epidemic is mostly based on the historical experience of overseas countries. From the perspective of overseas experience, it takes about 3 months for the epidemic to fall back to a low level after the epidemic prevention policy is adjusted. time.

However, after entering January, the peak of infection in many places in China has passed, and it took only one month for the current round of domestic epidemic to fall back to a low level from the outbreak. Therefore, the impact of the epidemic on the domestic economy will be much shorter than previous market expectations. Expectations for the pace of economic recovery should also be adjusted upwards.

Second, from January 3, 2023, the trading hours of the inter-bank foreign exchange market will be extended to 3:00 the next day, which will further expand the depth and breadth of the domestic foreign exchange market, thereby further enhancing the attractiveness of RMB assets to overseas institutions, and the demand for RMB to purchase foreign exchange Then climbed.

How big is the room for appreciation in the future?

　　Despite a strong start to the year, institutions are relatively calm in predicting the next short-term trend of the RMB exchange rate.

　　"In January, with the recovery of economic vitality and the increase of personnel mobility, high-frequency data promoted the improvement of expectations. The exchange rate trend does not rule out a certain degree of 'overshooting'. Therefore, we expect that the exchange rate may adjust in the short term, and the trend may return to volatility. However, without changing the judgment that the annual appreciation is expected to rise to 6.6, the appreciation trend will be further confirmed from the second quarter.” Zheshang Securities pointed out.

　　UBS Securities pointed out that in the short term, further interest rate hikes by the Federal Reserve may cause some fluctuations in the yuan after its recent strength.

However, the yuan is expected to strengthen in the second half of 2023 as Chinese economic growth accelerates and the Federal Reserve begins to ease monetary policy.

　　China Merchants Securities believes that the RMB exchange rate may enter a period of volatility in the next few weeks.

From the perspective of internal factors, the policy-driven exchange rate appreciation may be coming to an end, and it is about to enter the fundamental-driven stage.

From the perspective of external factors, overseas investors have already priced in a very dovish Fed policy expectation. The probability of a further decline in the U.S. dollar index in the short term is not high, and it is difficult to support the continued appreciation of the RMB against the U.S. dollar.

　　However, institutions tend to believe that it will be a high probability event that the exchange rate of RMB against the US dollar will rise throughout the year.

　　Guotai Junan believes that throughout the year, the appreciation of the renminbi is still a major trend, but in terms of rhythm, it will depreciate first and then rise on the current basis.

After the second quarter of 2023, the reversal of the fundamentals of China and the United States will start a trend appreciation of the RMB.

After the bottom of China's economy, there is a high probability that it will start to recover in the second quarter, and it will be more optimistic in the second half of the year.

However, in the middle and later stages of the first quarter, the short-term depreciation pressure on the RMB exchange rate may bring the RMB exchange rate back to around 7.0.

　　CICC believes that although the renminbi has soared rapidly in the short term, from a fundamental point of view, there are both positive and negative factors for the renminbi exchange rate.

Therefore, it is difficult for the RMB exchange rate to appreciate independently of the US dollar index for a long time.

Before the downward trend of the U.S. dollar index begins, it is still judged that the RMB exchange rate will fluctuate in a two-way wide range.

　　CICC pointed out that as the unilateral depreciation of the RMB exchange rate is expected to gradually subside, the conditions for the promotion of RMB internationalization have begun to improve.

In the central bank's third-quarter monetary policy implementation report, the internationalization of the RMB was changed from "steady and prudent advancement" to "orderly advancement".

This change shows that after the positive cross-border capital flow environment and RMB fluctuation environment, the direction of RMB internationalization is more determined.

Starting in 2023, the trading hours of the RMB onshore market will be extended from 23:30 to 3 am the next day.

After covering the American trading hours, the RMB foreign exchange market can meet the trading needs of more overseas funds such as trade settlement and asset allocation.

We believe that RMB internationalization may make breakthroughs in multiple dimensions such as trade settlement and capital market interconnection this year.

　　Xuan Changneng, vice-governor of the People’s Bank of China, said at the press conference of the State Council Information Office on the appreciation of the RMB that the current and future trends in the RMB exchange rate will be affected by multiple factors such as domestic and foreign economic and financial situations, the balance of payments, and market risk appetite. No is inevitable.

Overall, there is a solid foundation for maintaining basic stability.

Recently, China's economy has generally continued to recover, and the epidemic prevention and control has been dynamically optimized. In the context of high global inflation, we have maintained basic stability in prices. Considering the decline in the economic prosperity index of major economies, the growth rate of my country's trade surplus may drop. .

Under the comprehensive effect of various forces, my country's RMB exchange rate will generally maintain a stable operation.