1.Market Overview: On May 26, the spot exchange rate of USD against RMB fell below the round mark of 6.40, with the lowest transaction being 6.3871. The appreciation of RMB against USD hit a new high since the trade conflict between China and the US in early May 2018.
2. Core reasons: The core reasons for the RMB’s re-entry into the appreciation track since April come from the following aspects, which show a spiral and gradual logical transmission relationship:
(1) The fundamentals of a stronger RMB have not changed fundamentally: the surge of investment inflows and US dollar deposits caused by Sino-foreign interest rate differentials and financial opening-up, the excess surplus caused by export substitution effect, and the significant passivation of Sino-US conflicts;
(2) The external dollar continues to weaken: since the beginning of April, the dollar index has fallen by 3.8% from 93.23 to 89.70 due to pre-reflation and a cooling of the long-end interest rate theme. Under the current central parity mechanism, the RMB has appreciated by about 2.7% against the US dollar.
(3) The supply and demand of domestic foreign exchange settlement and sale tend to be balanced: the surplus of foreign exchange settlement and sale in April was reduced to 2.2 billion US dollars, and the surplus of contracted derivatives also decreased significantly compared with the previous period. As the market enters the season of dividend and foreign exchange purchase, the overall supply and demand tend to be balanced, making the RMB exchange rate more sensitive to the price of US dollar and the marginal expectation of the market at this stage.
(4) The correlation between USD, RMB and USD index has increased significantly, but the volatility has decreased significantly: the positive correlation between USD and USD index is 0.96 from April to May, significantly higher than the 0.27 in January. Meanwhile, the realized volatility of onshore RMB exchange rate in January is about 4.28% (30-day leveling), and it is only 2.67% since April 1. This phenomenon shows that the market is passively following the form of the US dollar, and the expectation of the customer plate is gradually becoming stable, high settlement of foreign exchange, low purchase of foreign exchange, to reduce the market volatility;
(5) In this context, the recent drop of 0.7% in a week when the US dollar broke 90, domestic foreign currency deposits broke one trillion yuan, northbound capital increased by tens of billions of yuan, and the expectation of RMB appreciation appeared again. In a relatively balanced market, the RMB quickly rose above 6.4.
3. Next Phase: Until a significant dollar rebound occurs, we believe the current appreciation process will continue. When customers’ expectations are unclear and are dominated by their emotions and the company’s accounting gains and losses, they tend to present a trend similar to the disorderly settlement of exchange and disorderly appreciation in January this year. At present, there is no obvious independent market of RMB, and under the continued pressure of the US dollar, the appreciation expectation is more clear.
Post time: 27-05-21