The RMB Exchange Rate Trend Is Full Of Twists And Turns In 2015.

At the beginning of the new year, the US dollar index is close to the nine year high, which may indicate that the RMB exchange rate trend in 2015 is full of twists and turns.

In 2014, the "old normal" of the unilateral appreciation of the RMB against the US dollar appeared the first annual depreciation since 2005.

Market participants pointed out that a comprehensive analysis of the domestic and international economic and financial situation, the RMB exchange rate is still facing some pressure of depreciation in the short term, and allowing moderate depreciation of the RMB is not a bad idea. But sufficient foreign exchange reserves and a stable middle price policy can effectively control the expectation of RMB devaluation. After considering the strategic need to promote RMB internationalization and the potential of China's long-term economic growth is still huge, the depreciation of the RMB exchange rate is "bottom".

In 2014, the central parity of the RMB against the US dollar depreciated by 221 basis points, and the renminbi's cumulative depreciation of the US dollar spot market paction price was 1501 basis points, all of which were the first annual depreciation since the 2005 reform.

The annual depreciation of the RMB exchange rate is a subversion of the "normal" incident, but it is the expected result of all parties.

In recent years, the view that the RMB exchange rate approaches the equilibrium level has gradually become the consensus of the market.

Keeping close to the equilibrium level means that the RMB exchange rate will gradually get rid of the unilateral trend and create a new normal of two-way fluctuations around the equilibrium level.

In a sense, the exchange rate is close to the equilibrium level, which provides the foundation for the RMB to break the unilateral appreciation state. In 2014, the annual depreciation of the RMB exchange rate is the confirmation of the view that the RMB exchange rate is approaching the equilibrium level.

The internal and external economic and financial situation in 2014 provided an environment for the depreciation of the RMB exchange rate.

From an internal point of view, China's economic growth rate continued to slow down in 2014, and monetary policy gradually loosened. At the same time, the people's Bank of China continued to push forward the market pricing of the RMB exchange rate, reducing the normal intervention in the foreign exchange market; from the outside, the US economy recovered steadily, the Federal Reserve ended quantitative easing, and constantly released the signal of monetary policy returning to normalcy.

Integrated in the fundamentals of the RMB exchange rate, the relative advantage of China's economic growth is weakening, and the Sino US monetary policy is gradually showing a cyclical difference. The weakening of the RMB against the US dollar is logical.

In fact, not only is the renminbi, but in 2014, the US dollar index for the major currencies of the US dollar rose by more than 12% over the past nine years, reflecting the difference between the US economy and monetary policy and the major developed economies and emerging market countries.

In view of the fact that the US and China's economic growth and interest rates are rising, the short-term change is hard to change. In 2015, the RMB exchange rate will still face some devaluation pressure.

On the one hand, China

Downside risks remain. Despite the possibility of bottoming out, the economic growth is constrained by the pressure of deleveraging and the lack of new growth momentum. The market generally expects China's economic growth in 2015 to be lower than that in 2014.

In view of weak demand, falling commodity prices and weak rebound in food prices, inflation in 2015 is a potential danger.

In the environment of low growth and low inflation, China's monetary policy will still have moderate relaxation.

On the other hand, since the two quarter of 2014, the US economy has become more and more unique. The US economy plus leverage has been linked to a decline in oil prices and improved terms of trade, which is expected to continue to consolidate the momentum of steady economic recovery in 2015.

Driven by improved economic data, the market is expected to raise interest rates for the Fed. Federal funds interest rate futures show that the market expects to raise interest rates in the second half of 2015.

In recent years, the US dollar exchange rate continued to appreciate, and the US dollar index broke through the 91 point mark at the beginning of 2015, rewriting the new high of nearly nine years. It is a clear portrayal that the market is almost uniformly optimistic about the relative leading role of the US economy and monetary policy.

Analysts believe that in fact, allowing a moderate depreciation of the RMB exchange rate is also acceptable.

After all, the changes in the domestic and international economic situation make the current RMB no significant room for appreciation. Continuing to push up the already high RMB exchange rate will not be conducive to the improvement of foreign trade.

In addition, if the renminbi remains strong against the US dollar, the US dollar will remain strong.

It will also have a negative impact on the autonomy of domestic interest rate policy.

(pfer to A02 version)

(A01 version) but the market generally believes that there is no need to worry about a significant depreciation of the renminbi.

First, to achieve the goal of RMB internationalization and RMB becoming a reserve currency, we need a relatively strong exchange rate as a support.

Two, a significant depreciation of the RMB exchange rate may lead to cross-border.

A large number of outflows will jeopardize the overall situation of domestic financial stability.

Combining these two points of view, management will not tolerate a significant depreciation of the RMB exchange rate.

Three, the central bank has the ability to prevent the market from continuing to have a strong expectation of devaluation.

Our country has huge foreign exchange reserves, and if the monetary authority intends to maintain a strong exchange rate, it can be achieved.

At the same time, the RMB exchange rate between the US dollar and the US dollar is relatively stable in recent days, which conveys a signal to stabilize the price fluctuation in the RMB market.

Four, the interest rate of China and the United States is still attractive to us.

Taking the interest rates of the two countries' treasury bonds as an example, the spread of the US Treasury bonds has narrowed by about 100 basis points since the beginning of 2014, but there are still about 300 basis points, which are still at a higher position since 2006. The interest rate spreads on the ten year treasury bonds between China and the United States have not changed much.

Similarly, the absolute level of China's current economic growth continues to lead in major economies. With the continuous progress of comprehensive reform and structural adjustment, China's economic growth potential will be huge in the future.

Standing in the perspective of global allocation of overseas assets, RMB assets remain an important option.

This is evident from the continued increase in Renminbi bonds held by foreign institutions in 2014.

It is also necessary to point out that in view of the weaker performance of other major non US currencies, the real effective exchange rate of the RMB may remain appreciable even if the RMB exchange rate depreciates moderately against the US dollar in the future.

Market participants say that over a longer period of time, although the unilateral appreciation pattern has been broken, China's economic growth potential is very large, and its growth rate has gradually bottomed out and stabilized. But in addition, the RMB exchange rate is expected to remain stable overall, with a gradual rise or fall in value or alternatively, and two-way fluctuations will be enhanced.