Focus on the "synchronous appreciation" of RMB and US dollar. Why? Will it last?

Recently, the RMB exchange rate and the US dollar index have shown a "double strong" pattern. On November 16, the onshore RMB rose above the 6.37 mark, a new high since June 1. Meanwhile, the dollar index also stood at 95 points. In the context of the recent sustained strength of the US dollar, the three major RMB exchange rate indexes rose instead of falling, showing strong performance.

Experts predict that the short-term US dollar index is expected to remain strong. Near the end of the year, with the support of strong exports, there is a strong demand for RMB foreign exchange settlement, and the RMB exchange rate is expected to maintain a strong performance.

The RMB and the US dollar rose at the same time

Influenced by the fact that the year-on-year increase of CPI in the United States in October was significantly higher than expected, the US dollar index continued to strengthen, reaching the highest level since July 2020.

The renminbi also showed strength. According to the data released by China foreign exchange trading center, as of November 12, the CFETS RMB exchange rate index was 101.08, a new high since December 2015, up 0.25 on a weekly basis; The BIS currency basket RMB exchange rate index was at 105.25, up 0.1 on a weekly basis; The SDR basket RMB exchange rate index was at 99.49, up 0.28 on a weekly basis. Since this year, the CFETS RMB exchange rate index has increased by more than 6%.

"Recently, inflation in the United States has soared sharply, and the expectation of tightening monetary policy has increased. At the same time, in November, the Bank of England postponed raising interest rates, and the president of the European central bank reiterated that it would not raise interest rates next year. The market's expectation of tightening monetary policy in the United Kingdom and the eurozone is cooling." Wang Qing, chief Macro Analyst of Dongfang Jincheng, said that the latest trend of monetary policy on both sides of the Atlantic, This is the main reason for the recent rise of the US dollar index.

In the context of the rise of the US dollar index, the RMB exchange rate against the US dollar did not depreciate simultaneously, but appreciated, which directly promoted the three major RMB exchange rate indexes to rise more significantly. Wang Qing believes that there are two supporting factors behind the recent strong operation of the RMB: first, in the fourth quarter, China's exports remained strong, the demand for foreign exchange by export enterprises pushed up the RMB exchange rate, and the market sentiment was more inclined to long the RMB; Second, China and the United States held a video meeting on November 16. The meeting increased the positive expectations of the international community on China US relations and became an important reason for a wave of strong trend in the RMB exchange rate during the rise of the US dollar.

Lou Feipeng, a researcher at China postal savings bank, believes that the overall economic fundamentals of the United States are better than those of Europe and Japan, and the tightening of monetary policy is earlier than those of Europe and Japan, which supports the rise of the US dollar index from the economic fundamentals and policies. China's economy continued to recover steadily, and its exports continued to be high year-on-year, providing support for the RMB exchange rate from the economic fundamentals; The monetary policy remained continuous and stable, and provided policy support for the RMB exchange rate.

The two-way fluctuation of RMB exchange rate is normal

Will the simultaneous rise of RMB and US dollar continue? Industry insiders believe that this depends on the supporting factors behind the two. The key factor behind the strength of the RMB is exports. Under the global epidemic, China's highly resilient supply chain supports exports. In addition, a steady flow of funds flows into China, and the domestic US dollar deposits of Chinese enterprises exceed the US $1 trillion mark, which also stabilizes the fluctuation of RMB. Once the RMB depreciates, enterprises will take the opportunity to settle foreign exchange and push up the RMB.

The recent strength of the US dollar is mainly due to US inflation exceeding expectations, driving nominal economic growth and strengthening interest rate hike expectations. The short-term US dollar index is expected to remain strong under the influence of the expectation of raising interest rates in advance. Zhou Maohua, a macro researcher in the financial market department of Everbright Bank, predicts that the US dollar index center will continue to rise in the future, mainly because the US dollar liquidity environment or the US financial environment tends to "close" in the medium term, that is, the start of the normalization cycle of the Federal Reserve's policy, which is equivalent to recovering the US dollar liquidity in the global economic system; At the same time, compared with other developed economies such as Europe, the recovery of the United States is relatively early, and the fundamentals and policies will also be good for the dollar.

For the future trend, Wang Qing judged that before the end of the year or even the first half of next year, China's export momentum will not weaken significantly, and the demand for foreign exchange of export enterprises will continue to support the RMB exchange rate; After the first video meeting between China and the US dollar, the gradual implementation of a series of specific arrangements will also form an upward traction on the RMB exchange rate. Therefore, the RMB exchange rate will probably continue its strong momentum in the short term.

"Looking forward to 2022, the economic growth gap between China and the United States is likely to narrow periodically. The direction of the Federal Reserve tightening monetary policy is relatively certain, and the domestic monetary policy will continue to adhere to the tone of flexibility, accuracy, rationality and moderation, without excluding the possibility of marginal widening. Therefore, it is unlikely that the RMB will continue to go out of the unilateral appreciation market in the future, and will probably return to the two-way fluctuation pattern." Wang Qing said.

Zhou Maohua also believes that the RMB will continue to operate near a reasonable equilibrium level and normalize two-way fluctuations. First of all, economic fundamentals and policies are stable. The economy is expected to operate within a reasonable range, and the monetary policy will continue to maintain a stable tone; Secondly, the balance of payments is basically balanced, and the two-way flow of cross-border capital is rational and orderly; Thirdly, the future momentum of the dollar is moderate. There are still more than 4 million jobs in the United States that have not been replenished, the epidemic has not been fully controlled, and the normalization process of U.S. policy is slow. It is noteworthy that at present, the prospects for global epidemic prevention, economic recovery and inflation are not clear, the recovery of various countries is unbalanced, policy differentiation has led to investor differences, and the market volatility is more intense.

More market players tend to use RMB

In order to avoid exchange rate risk, more market players tend to choose to use RMB in cross-border trade and investment. The RMB internationalization report 2021 recently released by the people's Bank of China shows that the cross-border RMB settlement volume related to the real economy such as current account and direct investment has increased rapidly, and the use of RMB in important fields such as bulk commodities and ASEAN has further increased.

According to statistics, in the first half of this year, the total amount of cross-border collection and payment of RMB by banks on behalf of customers was 17.57 trillion yuan, a year-on-year increase of 38.7%. According to the data released by the global banking financial Telecommunications Association, in June this year, RMB ranked fifth among the major international payment currencies.

"Generally speaking, export enterprises will use more strong currencies for trade settlement. The rise of the RMB index against a basket of currencies this year means that the RMB appreciates against most currencies. In the process of exporting to China, overseas enterprises charge RMB, which not only avoids the risk of exchange loss, but also generates a certain range of exchange gains and thickens profits after being converted into domestic currency." Wang Qing thinks.

In Zhou Maohua's view, this reflects that global investors are optimistic about China's economy for a long time, and the RMB has become one of the most stable currencies in the world. More and more foreign trade enterprises have increased the proportion of RMB settlement when signing foreign trade contracts next year.

The increased enthusiasm of domestic and foreign enterprises to use RMB is also an important embodiment of the solid progress of RMB internationalization. The central bank said that in the next stage, it will adhere to market driven and enterprises' independent choice, further improve the policy support system and infrastructure arrangements for the cross-border use of RMB, promote the two-way opening of financial markets, develop the offshore RMB market, create a more convenient environment for market players to use RMB, and further improve the prudent management framework for cross-border capital flows, Hold the bottom line of no systemic risk.

Source: Economic Daily reporter Yao Jin

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