RMB: short-term fluctuations are inevitable and long-term resilience remains unchanged

After two years, the RMB exchange rate has returned to below 6.9 yuan. On August 31, the onshore RMB closed at 6.8905 against the US dollar, up 75 basis points from the previous trading day. Compared with the closing price of 6.7390 at the end of July, the spot exchange rate of RMB against the US dollar fell by 1515 basis points in August, with a depreciation of more than 2.2%.
Influenced by multiple factors, the RMB exchange rate has depreciated sharply recently. However, the current exchange rate index of RMB against a basket of currencies is still above 100, which shows strong resilience and stability compared with the major non US dollar currencies in the world. At the same time, since August, foreign investors have generally bought Chinese securities net, reflecting the long-term investment value of RMB assets.
Long term worry free RMB exchange rate
Since the central bank cut the medium-term lending facility and the quoted loan market rate (LPR) on August 15, the trend of monetary policy between China and the United States has continued to diverge, which directly perturbed the sharp fluctuation of the RMB exchange rate against the US dollar.
On August 29, the US dollar index broke a new 20-year high, and non US dollar currencies adjusted one after another. The offshore RMB against the US dollar fell below 6.93, and the onshore RMB against the US dollar fell below 6.92, both breaking two-year lows. On August 31, the onshore RMB closed at 6.8905 against the US dollar, up 75 basis points from the previous trading day.
"At present, the global foreign exchange market shows a pattern of strong US dollar and weak non US dollar currencies, and the RMB has also been affected to some extent." Zhao Qingming, vice president of the China Foreign Exchange Investment Research Institute, said.
On the occasion of the devaluation of the RMB, a relevant person in charge of the State Administration of foreign exchange said recently that China's foreign exchange settlement and sales market is running smoothly, and since August, the bank's foreign exchange settlement and sales and foreign-related receipts and payments have shown a double surplus. For a long time, China's foreign exchange market has shown strong resilience. The trade in goods showed a high surplus, the actual utilization of foreign capital kept growing, and the inflow of funds from the real economy helped to achieve a basic balance between supply and demand in the foreign exchange market.
According to the data, the exchange rates of euro, Japanese yen and British pound against the US dollar fell by 3.84%, 4.37% and 4.43% respectively during the same period. The change of RMB against the US dollar by about 2% is not only smaller than the increase of the US dollar index, but also smaller than the decline of major non US dollar currencies such as the euro.
Looking at the medium - and long-term trend of the RMB, insiders generally believe that the subsequent trend of the RMB exchange rate will continue to be affected by multiple internal and external factors. Two way fluctuations are normal, but will remain basically stable at a reasonable and balanced level. The series of measures to stabilize the economy continue to be implemented and effective, and the introduction of new follow-up measures will consolidate the good trend of economic recovery and strengthen the fundamental support of the RMB exchange rate.
Zhang Aoping, President of the incremental Research Institute, told the international business daily that in the long run, China's economic development is resilient and has sufficient potential, and the basic trend of long-term improvement has not changed. From a global perspective, RMB assets still have long-term investment value, which will provide basic support for the stability of the RMB exchange rate and make the RMB exchange rate worry free for a long time.
The charm of RMB assets remains
The latest special drawing right (SDR) basket of currencies of the International Monetary Fund (IMF) officially came into effect in August, and the weight of the renminbi in it was increased to 12.28% from 10.92% previously. "This increase in the weight of RMB reflects the improvement of China's economic and financial status, helps further enhance the status of RMB as an international reserve currency, and highlights the attraction of RMB assets to international funds." Xu Hongcai, deputy director of the economic policy committee of the China Policy Science Research Association, said.
Data show that in July, overseas institutional investors bought 518.8 billion yuan of RMB bonds, sold 512.3 billion yuan, and bought nearly 6.6 billion yuan net. Although affected by the short-term decline of the RMB exchange rate, northbound funds have fluctuated to a certain extent recently, on the whole, foreign investors have bought Chinese securities net since August.
A few days ago, many foreign-funded institutions also said that China's long-term economic development prospects are good, the impact of short-term exchange rate fluctuations is limited, and China's assets are still attractive to foreign capital.
JPMorgan Chase recently released a report that investors can take the recent undervaluation of China's stock market as an opportunity to further increase their positions. DBS believes that the continued bullishness on China's stock market benefits from the local economic development, and after the correction, the valuation of China's stock market has become more attractive.
"At present, China's foreign exchange market participants are more rational in their participation, maintain the trading mode of 'settling foreign exchange at high prices', and the exchange rate is expected to be stable, which helps the RMB exchange rate to remain basically stable at a reasonable and balanced level." The above-mentioned person in charge of the State Administration of foreign exchange said.
Xu Hongcai said that in order to attract QFII (qualified foreign institutional investors) to better and more safely enter China's financial market for investment, while constantly optimizing and improving its opening-up policy, China should also make efforts to stabilize its economic and financial fundamentals. Among them, the exchange rate should be relatively stable, especially to provide a multi-level financial market system with breadth and depth.