Last week, the market speculated that the yuan was approaching 7 yuan to the dollar after the second sharp decline of the year that began on August 15.
On September 15, the offshore yuan fell below 7 yuan to the US dollar, sparking heated market discussion. As of 10 o ‘clock on September 16, the offshore yuan traded at 7.0327 to the dollar. Why did it break 7 again? First, the dollar index hit a new high. On September 5, the dollar index crossed the 110 level again, hitting a 20-year high. This is mainly due to two factors: the recent extreme weather in Europe, energy tensions caused by geopolitical conflicts, and inflation expectations driven up by the recovery in energy prices, all of which have renewed the risk of a global recession; Second, Fed Chairman Powell’s “eagle” remarks at the central bank’s annual meeting in Jackson Hole in August raised interest rate expectations again.
Second, China’s downside economic risks have increased. In recent months, there have been many factors affecting economic development: the rebound of the epidemic in many places directly affected economic development; The gap between supply and demand of electricity in some areas is forced to cut off electricity, which affects the normal economic operation; The real estate market has been impacted by the “wave of supply interruption”, and many related industries have also been affected. Economic growth faces a contraction this year.
Finally, the monetary policy divergence between China and the United States has deepened, the long-term interest rate spread between China and the United States has widened rapidly, and the inverted degree of Treasury yields has deepened. The rapid fall in the spread between US and Chinese 10-year Treasury bonds from 113 BP at the start of the year to -65 BP on September 1 has led to a sustained reduction in domestic bond holdings by foreign institutions. In fact, as the U.S. increased its monetary policy and the dollar rose, other reserve currencies in the SDR(Special Drawing Rights) basket fell against the dollar. , the onshore yuan traded at 7.0163 to the dollar.
What will be the impact of RMB “breaking 7″ on foreign trade enterprises?
Import enterprises: Will the cost increase?
The important reasons for this round of RMB depreciation against the dollar are still: the rapid widening of the long-term interest rate differential between China and the United States, and the adjustment of monetary policy in the United States.
Against the background of the appreciation of the US dollar, other reserve currencies in the SDR(Special Drawing Rights) basket all depreciated significantly against the US dollar. From January to August, the euro depreciated by 12%, the British pound depreciated by 14%, the Japanese Yen depreciated by 17%, and the RMB depreciated by 8%.
Compared with other non-dollar currencies, the depreciation of the yuan has been relatively small. In the SDR basket, in addition to the depreciation of the US dollar, the RMB appreciates against non-US dollar currencies, and there is no overall depreciation of the RMB.
If the import enterprises use the dollar settlement, its cost does increase; But the cost of using euros, sterling and yen is actually reduced.
As of 10 a.m. Sept. 16, the euro was trading at 7.0161 yuan; The pound traded at 8.0244; The yuan traded at 20.4099 yen.
Export enterprises: The positive impact of exchange rate is limited
For export enterprises mainly using US dollar settlement, there is no doubt that the depreciation of the renminbi brings good news, enterprise profit space can be significantly improved.
But companies that settle in other mainstream currencies still need to keep a close eye on exchange rates.
For small and medium-sized enterprises, we should pay attention to whether the exchange rate advantage period matches the accounting period. If there is a dislocation, the positive impact of the exchange rate will be negligible.
Exchange rate fluctuations may also cause customers to expect the appreciation of the dollar, resulting in price pressure, payment delays and other situations.
Enterprises need to do a good job in risk control and management. They should not only investigate the background of customers in detail, but also, when necessary, adopt measures such as appropriately increasing the deposit proportion, purchasing trade credit insurance, using RMB settlement as far as possible, locking the exchange rate through “hedging” and shortening the price validity period to control the adverse impact of exchange rate fluctuations.
03 Foreign trade settlement tips
Exchange rate fluctuation is a double-edged sword, some foreign trade enterprises have begun to actively adjust the “lock exchange” and pricing to enhance their competitiveness.
IPayLinks tips: The core of exchange rate risk management lies in “preservation” rather than “appreciation”, and “exchange lock” (hedging) is the most commonly used exchange rate hedging tool at present.
Regarding the exchange rate trend of RMB against the US dollar, foreign trade enterprises can focus on the relevant reports of the Federal Reserve FOMC interest rate setting meeting on September 22, Beijing time.
According to CME’s Fed Watch, the probability of the Fed raising interest rates by 75 basis points by September is 80%, and the probability of raising interest rates by 100 basis points is 20%. There is a 36% chance of a cumulative 125 basis point increase by November, a 53% chance of a 150 basis point increase and an 11% chance of a 175 basis point increase.
If the Fed continues to raise interest rates aggressively, the US dollar index will rise strongly again and the US dollar will strengthen, which will further increase the depreciation pressure of RMB and other non-US mainstream currencies.
Post time: Sep-20-2022