General

On August 29, both the onshore and offshore renminbi against the U.S. dollar hit a nearly two-year low. As of the close of the day at 16:30, the onshore RMB against the U.S. dollar was at 6.9210, with the lowest hitting 6.9229, down 589 basis points from the previous trading day; the offshore RMB against the U.S. dollar fell below the three levels of 6.90, 6.91, and 6.92 in a row, with the lowest hitting 6.9315 , fell more than 300 points in the day.

At the same time, the U.S. dollar index has continued to rise in recent times, rising above 109.40 in intraday trading on August 29, hitting a new high in the past 20 years. The U.S. dollar index has risen more than 13.8% this year.

“This round of RMB depreciation is mainly related to the U.S. dollar index. Along with the depreciation of the Korean won and the Japanese yen, the appreciation of the U.S. dollar has led to a general depreciation of currencies in emerging markets, including Turkey, Brazil, and the currencies of neighboring countries in Southeast Asia.” August 29 , Tan Yaling, president and chief economist of the China Foreign Exchange Investment Research Institute, said that the strength of the US dollar index is related to the Fed's interest rate hikes and hawkish remarks, superimposed on geopolitical conflicts, and the US dollar's hedging function has played a role.

"Looking ahead, the trend of the RMB exchange rate depends on the US dollar index. In the absence of the European energy crisis and the downward pressure on the economy, as well as the continued interest rate hike by the US dollar without curbing inflation, the US dollar index will continue to strengthen, while the RMB exchange rate against the US dollar will continue to rise. Correspondingly weakened." Wu Xinru, a professor and doctoral supervisor at the School of Economics of East China Normal University, pointed out to Times Finance.

In Wu Xinru's view, the trend of China-US interest rate spread will continue in the future. China's international trade continues to have a large-scale surplus, prices are relatively stable, and the epidemic is in good condition. There is no basis for the overall depreciation of the renminbi.

The logic of this round of RMB depreciation is related to the US dollar index

Unlike the devaluation in April due to the impact of the epidemic, the market generally attributed this round of RMB depreciation to the US dollar index.

The Fed's tightening expectations combined with the rising risk of stagflation in the euro zone pushed the US index back to a 20-year high, up 3.0% from August 15 to 26, and up 13.4% this year. During the same period, the Wind RMB exchange rate forecast index was basically flat, down 0.3% so far this year. It can be seen that it is still not that the RMB is weak, but that the US dollar is too strong.

For the strengthening of the US dollar index, due to the continuous interest rate hike operation by the Federal Reserve, the difficulty of the euro being strong under the game of the European Central Bank's interest rate hike and the recession of economic fundamentals, and the still weak yen, the US dollar index cannot be described as an inflection point, and the strong dollar may lead to the RMB facing Certain passive depreciation pressure.

Tan Yaling further stated that the hawkish remarks of the Federal Reserve are the main factors that disturb the US dollar index. It is reported that although the previously announced U.S. CPI in July rose 8.5% year-on-year, the growth rate fell, but Fed Chairman Powell still released "hawkish remarks" at the Jackson Hole Global Central Bank Annual Meeting on August 26, local time.

According to CCTV news, Powell said that the Fed will continue to take "strong" measures to fight inflation, there is no room to stop or pause, and reducing inflation to 2% remains the Fed's key goal. One shouldn't expect the Fed to dial back quickly until inflation is resolved.

Cleveland Fed President Mester also said that the Fed will go all out to curb inflation, and she supports raising the benchmark interest rate to above 4% early next year.

Tan Yaling also noticed that the recent devaluation of the renminbi has been relatively rapid in the offshore renminbi exchange rate. Generally speaking, due to the exchange rate settlement at the end of the month, the offshore RMB generally appreciates. Therefore, Tan Yaling judges that the market on August 29 is mainly connected with the market on Friday, but the market on August 30 and 31 may return to the correction in the direction of RMB appreciation at the end of the month.

"September is the settlement month of the U.S. fiscal year. If the dollar depreciates, it will help the U.S. fiscal deficit and debt collection." In Tan Yaling's view, September is a very critical window period, and the U.S. dollar index may fall.

Exporters still face multiple pressures

"Renminbi is depreciating now, and it is more cost-effective to exchange more RMB for 1 US dollar." On August 29, Mr. Zhang, who is engaged in the export of stainless steel kitchenware in Shantou, Guangdong, told Times Finance. But despite the devaluation of the renminbi, it didn't bring him much excitement because orders were dwindling.

According to Mr. Zhang, as far as he knows, in the last month, orders in his industry have decreased by 40% compared with last year, and "exports and domestic demand are much worse."

Tan Yaling also believes that now, the devaluation of the RMB is not enough for foreign trade companies to tide over the difficulties, "Before, the appreciation of the RMB to 6.3 has exceeded the cost line that the company can make a profit, coupled with the continuous rise in the prices of raw materials for bulk commodities in the past two years. , combined with rising shipping prices, rising labor costs, and a sharp drop in orders, it is particularly difficult for small and medium-sized enterprises."

On August 29, Sun Xiao, spokesperson of the China Council for the Promotion of International Trade and Secretary-General of the China Chamber of International Commerce, said at the monthly regular press conference that a recent questionnaire survey conducted by the China Council for the Promotion of International Trade on more than 500 enterprises showed that the main difficulties enterprises are currently facing. It is the slow logistics, high cost and few orders. 56% of companies said that raw material prices and logistics costs are high. 62.5% of the companies indicated that orders were unstable, with more short orders and small orders, and fewer long orders and large orders.

Looking forward to the future, the industry is more worried about the foreign economic situation.

Lian Ping, chief economist and dean of the Research Institute of Zhixin Investment, and chairman of the China Chief Economist Forum, once told Times Finance that there are some uncertainties in the export situation in the second half of the year. Although the growth rate of the Western economy declined in the third quarter, it has not yet appeared in a very bad situation. The fourth quarter may be on the verge of recession, there may be a significant decline in economic growth, and some economies, including the European Union, may even experience negative growth.

Soochow Securities pointed out that when net exports deteriorated, the depreciation flexibility of the RMB exchange rate was greater. Conversely, when net exports continue to improve, the RMB will be more resilient to appreciation. Typically, after the epidemic in 2020, the improvement in net exports will make the RMB appreciate with great inertia, even if the US dollar begins to rebound strongly in the second half of 2021.

Soochow Securities estimates that the inflection point of net exports may appear in the fourth quarter of this year or early next year, mainly depending on changes in the supply and demand pattern at home and abroad and epidemic prevention and control.

The CITIC Securities Research Report also pointed out that considering that the subsidies for overseas residents have been exhausted and the increase in the stock market volatility this year has increased the drag on the wealth effect, and overseas residents are expected to shift more from commodity consumption to service consumption, export growth in the second half of the year will increase. It will gradually decline as the marginal external demand weakens.

In fact, in addition to changes in overseas demand, we also need to pay attention to changes in price factors. Since last year, overseas price hikes have also pushed up China's exports. Data show that China's trade surplus in May reached US$78.75 billion, the trade surplus in June was as high as US$97.9 billion, and the trade surplus in July reached US$101.3 billion.