As of the close of trading on July 2nd, the RMB exchange rate against the US dollar was 6.4825, depreciating 804 basis points or 1.26% in the past three weeks. In addition, in June, the Federal Reserve's policy tone turned to the "hawkish" and the interest rate increase tendency was obvious. The strengthening of the US dollar made some people start to worry about whether the RMB will continue to depreciate.
In fact, there is no need to worry too much about it. The recent depreciation of RMB against the US dollar, on the one hand, is the announcement of the US inflation rate beyond the market expectation, resulting in the Federal Reserve policy tone in June to the "hawkish", which promoted a strong rebound of the US dollar index; On the other hand, the RMB/US dollar exchange rate was previously driven by market sentiment, and there was a certain "overshoot" relative to the stable performance of domestic fundamentals and policies. With the rebound of the US dollar, market sentiment has stabilized, and RMB has seen a reasonable correction recently.
The recent macroeconomic and foreign trade data show that the RMB exchange rate is running at a reasonable and balanced level. This is mainly due to the solid fundamentals of China, the continuous improvement of China's economic structure and the positive results of the RMB market-based reform. China's epidemic prevention and control and economic recovery have performed well in the world, the effects of deepening reform and opening up have been released, the economic structure has been continuously optimized, macro risks are converging, international payments have basically maintained a balance, and the flexibility of the RMB exchange rate has increased significantly. The RMB exchange rate is stable on a solid basis.
From the comprehensive view of various factors, there is no short-term basis for substantial depreciation or appreciation of the RMB exchange rate.
First, domestic economy and policy remain stable. At present, the domestic economy is still in the recovery stage, the recovery of some industries is unbalanced, overseas epidemic prevention and economic recovery prospects are uncertain, coupled with the domestic inflation pressure is moderate and controllable, the full recovery of the domestic economy still needs some policy support. At the same time, we should avoid monetary policy causing macro leverage to rise too fast or local risk accumulation, and create an appropriate monetary environment. On the whole, China's policies will basically maintain continuity, stability and sustainability, with the exception of certain adjustments made during the special outbreak of the epidemic last year. There will be no abrupt change.
Second, renminbi assets are popular with international investors. The data show that the stock of RMB assets (stocks, bonds, etc.) held by foreign investors has increased steadily, reflecting that global investors highly recognize the achievements of China's deepening reform and opening-up and are optimistic about the long-term prospects of China's economy. As the world's second largest economy, China's economic prospects are promising. The country is promoting a new pattern of high-level opening-up, and foreign investment is expected to maintain a long-term inflow trend. According to the latest statistics of the International Monetary Fund, in the first quarter of 2021, RMB accounted for 2.45% of the global foreign exchange reserve assets, increasing for nine consecutive quarters. However, it is not commensurate with the 17% of the global economic aggregate of China's economy. In the future, there is still a large room for the increase in the proportion of RMB in the global foreign exchange reserve assets.
Third, the Fed is slow to tighten policy. As U.S. employment and sustainable economic recovery, inflationary pressures have appeared, the fed will moderate recovery "excess liquidity", but the economy is still in the recovery, the global outbreak has not been completely controlled, to avoid policy tightening pricking asset bubbles, slow pace of the fed's policy normalization, means that the policy of "bad" held steady. What's more, the Fed's slow pace of rate hikes and the economic recovery in Europe and the United States will limit the scope for the dollar to appreciate.
To sum up, the RMB exchange rate is expected to continue to operate near a reasonable and balanced level, two-way fluctuations become normal, and the trend of the RMB is either up or down, which is also the inevitable result of the market-oriented reform of the exchange rate. For market players, the biggest risk is to bet on the "one-sided" movement of the renminbi. For small and medium-sized foreign trade enterprises, it has become very important to manage exchange rate risks with foreign exchange derivatives. Enterprises should focus more on their main business, improve the added value of products and market competitiveness, make foreign exchange management tools return to "risk neutral", and avoid exchange rate speculation losses.
