General

The onshore and offshore RMB exchange rates against the U.S. dollar have both hit a new high in the past month, and at the same time, there has been a marked increase in the market’s voices about stabilizing the RMB exchange rate. From transaction behavior to market expectations, signs of RMB exchange rate stabilization are becoming more and more obvious. Wu Dan, a researcher at the Bank of China Research Institute, believes that the recent rebound in the RMB exchange rate is mainly related to factors such as the decline in the US dollar index, the significant inflow of northbound funds, and the recent frequent domestic favorable policies. "It is expected that the RMB exchange rate will remain basically stable for a period of time." .

Against the background of frequent signals from the Federal Reserve to raise interest rates, the US dollar index soared to over 100 in the first half of the year, hitting a nearly 20-year high of 105.01 on May 13. However, the market expects that a number of unfavorable factors will drag the US dollar index further lower recently, and the US dollar index fell to around 102.40 on June 8.

To explore the reasons for the decline of the US dollar index, first, the US macro data in April was sluggish, and the manufacturing PMI (purchasing managers' index) continued to fall to 55.4, a year-on-year decrease of 2.98%. Second, the inflation problem in the United States has not been alleviated. In April, the CPI (Consumer Price Index) rose by 8.3% year-on-year. Third, the appreciation of the exchange rate of the euro against the dollar is also negative for the dollar. In response to inflation in the euro zone, the European Central Bank is on the verge of raising interest rates.

In addition, affected by the weakening of the fundamentals of the U.S. economy, the 10-year real yield of U.S. Treasury bonds began to fall. In late New York trading on June 7, the yield on the benchmark 10-year U.S. Treasury bond fell 6.63 basis points to 2.9736%. The inversion of the Sino-US interest rate gap has also eased, and the return of cross-border capital has supported the rebound of the RMB exchange rate.

Recently, the trend of northbound capital inflow has been remarkable, hitting a two-year high in a single month, and RMB assets have become more attractive to foreign capital. On the one hand, from the perspective of short-term foreign capital flows, there was a clear return of northbound funds in May, and many foreign-funded institutions clearly expressed their optimism about the Chinese market. On May 20, the total single-day net purchase of northbound transactions was 14.236 billion yuan, a new high for the year. On May 31, the total single-day net purchase of northbound transactions was 13.856 billion yuan, the second highest in the year. On the other hand, from January to April, the pattern of cross-border capital flows was stable, and the current account and direct investment maintained a surplus inflow. However, affected by the international situation, short-term cross-border capital flows such as stocks and bonds fluctuated more.

This round of northbound capital inflow can be seen as an important positive signal, indicating that foreign capital has good market expectations for holding RMB assets, which is also conducive to the stable trend of the RMB exchange rate. The total accumulated net purchases of the northbound in May have turned to increase. As of May 31, the accumulative net purchases of Northbound were 1,633.417 billion yuan, an increase of 1.19% from the beginning of the month.

Recently, favorable domestic policies have been issued frequently, leading to stable market expectations and forming a strong support for the correction and stabilization of the RMB exchange rate. A number of major policies to stabilize the economic market have been introduced one after another, supporting the gradual recovery of economic fundamentals previously affected by factors such as the spread of the epidemic in many places, and guiding market expectations to become more reasonable. Economic fundamentals and reasonable expectations support the steady trend of the RMB exchange rate. key.

There are many measures to stabilize the foreign exchange market in the favorable policies to stabilize the economy, including promoting the stability and quality improvement of foreign trade, strengthening the building of banks’ foreign exchange risk capabilities, adding foreign exchange option tools to actively help small, medium and micro foreign trade enterprises to avoid foreign exchange risks; simplifying foreign investors’ purchase of domestic foreign exchange risks. Bond procedures, expand the scope of foreign investment in the domestic bond market; encourage and support domestic enterprises to expand cross-border financing channels, etc. The policy "combination boxing" provides comprehensive guidance from multiple aspects, escorts the stability of foreign exchange market transactions, and promotes the foreign exchange market to better serve the stable development of the real economy.