52.6 Breakthrough In Foreign Trade! RMB And US Dollar Exchange Rate Fluctuated Again

Recently, there are big fluctuations in the exchange rate of RMB and US dollar. Foreign trade friends need to continue to pay attention to, in order to avoid greater losses.

1. On December 4, offshore RMB rose more than 100 basis points against the US dollar, breaking through the 6.52 barrier at 6.5199, a new high since June 2018.

The onshore exchange rate against the US dollar rose above the 6.55 level at the opening, and then rose to 6.54 at 6.5343.

2. The continuous appreciation of the RMB exchange rate has become a new driving force for overseas capital to increase the position of RMB bonds.

According to the latest data of Bond Custody volume in November released by the Central Clearing Company, the denomination of RMB bond custody of overseas institutions in that month reached 2766.336 billion yuan, an increase of 83.66 billion yuan on a month on month basis, with a year-on-year increase of 47.88%, realizing a 24-month continuous increase in holdings.

Analysts believe that since November, the RMB exchange rate has reached new highs in the year, which has significantly enhanced the willingness of many overseas capital to add RMB bonds. Especially when they saw that the US dollar index is falling to the lowest point in the past two and a half years, many institutions have regarded RMB bonds as an important tool to hedge against the risk of dollar depreciation.

At present, many overseas investment institutions believe that the US dollar index will continue to fall by about 4% in the next six months due to the US Federal Reserve's QE measures. Therefore, holding RMB bonds can obtain at least 4% exchange earnings, which is enough to fill the "erosion" of the fixed income portfolio return caused by the continuous expansion of the scale of negative interest rate bonds in developed countries.

3. The recent appreciation of RMB exchange rate has entered the 6.5 era, which is mainly driven by three factors

1、 The dollar index is close to the year's low.

Despite the good news of vaccine research and development, the U.S. economic recovery is still facing a severe test from the fourth quarter of this year to the first quarter of next year. The market expectation of the Federal Reserve's loose monetary policy in December has risen, pushing the dollar index to drop below the 92 level.

2、 The interest rate gap between China and the United States has widened to a historical high.

Affected by the default risk of domestic credit debt, the yield of China's long-term treasury bonds and financial bonds tends to rise. In contrast, the market generally expects that the Federal Reserve will take action to suppress the yield of long-term U.S. Treasury bonds, resulting in a fall in the yield of 10-year US Treasury bonds, a significant expansion of the interest rate gap between China and the United States, and the appreciation of the RMB against the US dollar.

3、 The external environment tends to moderate.

The US general election has been concluded and the regional comprehensive economic partnership agreement has been reached, which has further boosted the momentum of RMB exchange rate rise.

4. The U.S. dollar index continued its decline, having fallen 10.5% since March 20. According to Stephen Roach, a senior research fellow at Yale University and former chairman of Morgan Stanley Asia, the US dollar may fall 35% against other major currencies between now and the end of 2021.

Fed officials' comments on the economy and monetary policy indicate that extremely loose monetary policy will be maintained, and the recent record breaking balance sheet size of the Fed shows that the Fed continues to practice its easing stance with action.

From a technical point of view, if the US dollar effectively falls below 91, it may open the space to fall to the 90 level. The monthly chart shows that the US dollar index began to oscillate for several months since August, and finally failed to recover the long-term upward trend line since 2011. The great Yin line in November fell below 92, officially confirming that the US dollar index may turn to a long-term bear market.

At the annual meeting of the China Institute of international finance and the first finance and economics Summit on December 3, Guan Tao, the global chief economist of BOC securities, said that the traditional methods in the past could not be used to deal with the pressure of exchange rate appreciation.

The appreciation of RMB exchange rate will be an old problem and a new challenge. Guan Tao believes that in order to adapt to the improvement of the marketization of exchange rate, China should consider including the change of RMB exchange rate into the monetary and financial condition index as a reference for evaluating the market liquidity tightness and monetary policy operation decision.