Since the second half of last year, the domestic foreign exchange market has gone out of a wave of strong DOLLAR and stronger RMB independent market under the impact of the Fed’s interest rate hike expectations.
Even in the context of multiple RRR and interest rate cuts in China and the continuous narrowing of interest rate differentials between China and the US, the RMB central parity rate and the domestic and foreign trading prices once hit the highest since April 2018.
The yuan continued to rise
According to Sina Financial Data, the CNH/USD exchange rate closed at 6.3550 on Monday, 6.3346 on Tuesday and 6.3312 on Wednesday. As of press time, the CNH/USD exchange rate quoted at 6.3278 on Thursday, breaking 6.3300. The CNH/USD exchange rate continued to rise.
There are many reasons for the rise of RMB exchange rate.
First, there are multiple rounds of interest rate hikes by the Federal Reserve in 2022, with market expectations of a 50 basis point rate hike in March continuing to rise.
As the Federal Reserve’s march rate hike nears, it has not only “hit” America’s capital markets, but also caused outflows from some emerging markets.
Central banks around the world have raised interest rates again, protecting their currencies and foreign capital. And because China’s economic growth and manufacturing remain strong, foreign capital has not flowed out in large numbers.
In addition, “weak” economic data from the eurozone in recent days has continued to weaken the euro against the renminbi, forcing the offshore renminbi exchange rate to rise.
The EURO zone’s ZEW economic sentiment index for February, for example, came in at 48.6, lower than expected. Its fourth-quarter adjusted employment rate was also “lousy”, falling 0.4 percentage points from the previous quarter.
Strong Yuan exchange rate
China’s trade surplus in goods in 2021 was US $554.5 billion, up 8% from 2020, according to preliminary data on the balance of payments released by the State Administration of Foreign Exchange (SAFE). China’s net direct investment inflows reached us $332.3 billion, up 56%.
From January to December 2021, the accumulated surplus of foreign exchange settlement and sale of banks amounted to us $267.6 billion, a year-on-year increase of nearly 69%.
However, even if the trade in goods and direct investment surplus has grown significantly, it is unusual for the renminbi to appreciate against the dollar in the face of strong us interest rate rise expectations and Chinese interest rate cuts.
The reasons are as follows: first, China’s increased outward investment has stopped the rapid rise of foreign exchange reserves, which may reduce the sensitivity of the RMB/US dollar exchange rate to the Sino-US interest rate differential. Second, accelerating the application of RMB in international trade may also reduce the sensitivity of RMB/USD exchange rate to sino-US interest rate differentials.
The yuan’s share of international payments rose to a record high of 3.20% in January from 2.70% in December, compared with 2.79% in August 2015, according to SWIFT’s latest report. The global ranking of RMB international payments remains the fourth in the world.
Post time: Feb-18-2022