General

On the first day of the last month of 2021, the strong rise in the RMB exchange rate caught all foreign traders by surprise.

On December 1, the central parity of the renminbi against the U.S. dollar was reported at 6.3693, an increase of 101 points, a record high since June. The exchange rate of RMB against the US dollar surged and fell on that day, hitting the 6.36 mark at one time, which was only one step away from the year's high of 6.3565.

Last year's 7.1 was like a dream, and I was still very moved after waking up for a long time.

Since the beginning of this year, the renminbi exchange rate has gone out of an "M" pattern-depreciation, appreciation, and shock. Since the beginning of this year, the RMB spot exchange rate against the US dollar has appreciated by 2.6%.

From the beginning of the year to the end of March, the RMB depreciated in volatility. The central parity of the RMB against the US dollar dropped from 6.47 at the beginning of the year to 6.57 at the end of March, a slight depreciation of about 1.4%.

From early April to early June, the renminbi exchange rate showed a significant appreciation trend, rising from around 6.56 to 6.36, an increase of about 3%.

Since the end of June, the RMB exchange rate has entered a period of turbulence, with a slight appreciation overall. The central parity of the RMB against the US dollar has fluctuated from 6.46 to 6.37, representing an appreciation of about 1.4%.

The 7.1 at the end of May last year now looks like a dream.

It is worth noting that since September, the US dollar against the RMB exchange rate and the US dollar index have begun to diverge significantly, and the RMB exchange rate and the US dollar index have both strengthened at the same time.

So what we see is that throughout November, the RMB spot exchange rate against the US dollar appreciated by 308 basis points, or 0.48%, from the 6.4009 at the end of October.

However, the U.S. dollar has shown a strong position against the currencies of other countries, such as:

So far this year, the Turkish lira has fallen 45% against the U.S. dollar, and it has depreciated by 28.3% in November alone;

The euro against the dollar fell to its lowest level since July 2020;

The Australian dollar hit a three-month low against the U.S. dollar at the end of November, and the Russian ruble was even worse, hitting a six-month low;

The yen has also depreciated by 9% this year, and the local currencies of Thailand and South Korea have depreciated by more than 7%.

This situation, for Chinese exporters settled in U.S. dollars, is going to fluctuate one after another and make the situation worse.

The depreciation of the currency of the importing country against the U.S. dollar means that the cost of imports will increase, which may discourage importers’ willingness to purchase;

Needless to say, we all understand that the currency of the exporting country has appreciated against the U.S. dollar.

The pressure of settlement at the end of the year

From December to the Spring Festival mark, the RMB exchange rate is the focus of my country's export companies. Foreign trade companies are accustomed to rallies to settle foreign exchange for the New Year. The strong demand for foreign exchange settlement may support the strengthening of the RMB exchange rate.

At the end of 2020, my country's export restoration will result in a certain amount of foreign exchange inflows. With the change in the company’s attitude of “wait and see” at the end of the year, real demand for foreign exchange settlement increased. At the end of December last year, the settlement exchange rate soared to 70.58%. Banks’ foreign exchange settlement and sales on behalf of their clients experienced a large surplus, which supported the RMB exchange rate.

An analyst at CITIC Securities clearly wrote in this week's report: "Considering the current historical highs of foreign exchange deposits by domestic non-financial companies, the Chinese New Year next year will be earlier than previous years. It is expected that the subsequent peak of foreign exchange settlement may be earlier."

Industrial Research believes that the current RMB exchange rate is a typical buying-dominated market, and short-term strong shocks or even breakthroughs from previous highs are not impossible. However, unlike the previous and mid-term periods of the current round of RMB appreciation, the foreign exchange market to be purchased "quietly grew" and "stayed on the sidelines." After the Lunar New Year, the rigid exchange settlement retreats, and the renminbi exchange rate is expected to repair the relative fundamental overvaluation.

When looking forward to the exchange rate trend in 2022, the Bank of China Research Institute pointed out that under the influence of increasing downward pressure on the Chinese economy, a probable slowdown in external demand growth, and the normalization of the Federal Reserve's monetary policy, the RMB exchange rate may face certain depreciation pressures. However, China's economy still has strong resilience, and the government's policy control tools are sufficient, and there is a high probability that the RMB exchange rate will still fluctuate within a reasonable range.