Recently, the renminbi exchange rate has made a big move again, and many people have said that there is a high probability that it will break 7. What happened all of a sudden?
01 RMB fell 6.98
On the 6th, the offshore RMB against the US dollar reported a high of 6.9825, falling below the 6.98 mark, continuing to hit a new low since 2020, and fell more than 400 basis points within the day.
The onshore market of the RMB exchange rate against the U.S. dollar also fell by more than 300 basis points. On the 6th, the highest onshore RMB exchange rate reported 6.9648.
On the 6th, data from the Foreign Exchange Trading Center showed that the central parity rate of the RMB against the US dollar was 6.9096, down 98 points. It is worth mentioning that this is the first time the median price has fallen below 6.90 since August 2020.
02 US dollar index broke through a new mark
Just a few days later, why did the RMB exchange rate break through 6.98?
First, the U.S. jobs report released last Friday showed that in the face of the Federal Reserve’s aggressive interest rate hikes, the economy’s momentum continued, with companies rapidly adding personnel, wage growth, and more Americans joining the workforce.
In this regard, Rick Rieder, chief investment officer of global fixed income at BlackRock, the world's largest asset management company, believes that the Fed will raise interest rates by another 75 basis points on September 21. Traders said the odds of continuing to tighten policy until rates hit around 3.8 percent were better than 50 percent.
Affected by the accelerated tightening of monetary policy by the Federal Reserve, the US dollar index once exceeded the 110 mark, triggering a passive depreciation of the RMB against the US dollar.
In addition, on Friday, local time, the U.S. Trade Representative (USTR) said that it had received more than 400 requests from U.S. companies and trade associations to retain punitive tariffs on China, so it decided to extend it, and the review process will be initiated next. , check the relevant tariff measures. This also affects the RMB exchange rate to a certain extent.
USTR will review whether to maintain tariffs on China under the 1974 Trade Act under which the U.S. tariffs are based, but the process could take months. While the review is in progress, the Biden administration will not withdraw tariffs on Chinese goods.
It is reported that the tariffs on China implemented by the United States in two rounds are valid for four years. They originally expired on July 6 and August 23 this year, but can only be terminated if domestic companies do not object.
03 The central bank announced to cut the reserve ratio by 2%
In addition, in order to improve the ability of financial institutions to use foreign exchange funds, the People's Bank of China has decided to reduce the foreign exchange deposit reserve ratio of financial institutions by 2 percentage points from September 15, 2022, that is, the foreign exchange deposit reserve ratio will be lowered from the current 8% to 6%. %.
This is the second time this year that the central bank has lowered the foreign exchange deposit reserve ratio. At the end of April this year, the central bank announced that the People's Bank of China will cut the foreign exchange deposit reserve ratio of financial institutions by 1 percentage point to 8% from May 15.
This wave of devaluation by the central bank can not help but make people wonder, the RMB is one step away from "breaking 7", is the central bank not afraid of this?
In this regard, Dong Ximiao, chief researcher of China Merchants Union Finance, said that lowering the foreign exchange deposit reserve ratio will release foreign exchange liquidity to the market and increase the supply of foreign exchange in the market, thereby further restraining foreign exchange appreciation and easing the pressure of RMB depreciation.
At the same time, it said that the foreign exchange deposit reserve ratio was lowered twice within a year, sending a clear policy signal to the market, which will help stabilize market confidence and expectations, and promote the RMB exchange rate to reduce volatility and return to normal. And in the long run, my country's economic fundamentals support the RMB exchange rate to remain basically stable at a reasonable and balanced level.
04 The currencies of other countries are also sluggish
The deputy governor of the People's Bank of China said that the U.S. dollar has appreciated by 14.6% this year. Against the background of the appreciation of the U.S. dollar, other reserve currencies in the SDR (Special Drawing Rights) basket have depreciated significantly against the U.S. dollar. The renminbi has also depreciated by around 8%, but the depreciation is the smallest compared to other non-dollar currencies.
Goldman Sachs Group Inc. and Societe Generale said a weaker yuan could pull down the Taiwan dollar, South Korean won, Thai baht, Malaysian dollar and South African rand. The currencies of Mexico, Hungary, Romania and Turkey are the most vulnerable, Nordic Bank said.
Data show that from January to August this year, the euro depreciated by 12%, the pound by 14%, and the yen by 17%.
The yen fell below 140 against the dollar for the first time in nearly 25 years as the Bank of Japan kept interest rates extremely low while the Federal Reserve and other central banks raised them aggressively.
On the 5th, the exchange rate of the Korean won against the US dollar fell below 1370:1 in intraday trading, a new low in nearly 13 and a half years.
This past August, the pound recorded its biggest monthly decline since the Brexit referendum in October 2016, amid heightened economic and political uncertainty. GBP/USD also briefly fell to 1.14435, its lowest level since 1985; GBP/EUR also fell nearly 3%.
The euro fell on Monday and tested 20-year lows as Russia announced an indefinite "gas break", stoking fears of energy shortages, high prices and a hit to economic growth.
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