RMB Central Parity Rose Nearly Two Month High

In January 28th, the data released by the China foreign exchange trading center showed that the central parity of RMB against the US dollar rose by 469 basis points, at 6.7472, a new high since July 19, 2018 and a two month high. On the same day, the spot exchange rate of RMB against the US dollar in the onshore market closed at 6.7398, a record high since July 18th last year, up 251 basis points from the previous trading day.


Wang Youxin, a researcher at Bank of China International Financial Research Institute, told reporters yesterday that the recent rise in the RMB exchange rate mainly stems from the decline in the US dollar, which is a passive rise. In 2019, the RMB will enter a cyclical rising channel.


Wang Qing, chief macroeconomic analyst at Orient Jincheng, told the Securities Daily reporters yesterday that the main reason for the market's anticipation is that the Fed may end its "shrink watch" early, and the overnight dollar index fell sharply by 0.76%. According to the current pricing rules for the central parity of RMB, the central parity of the RMB against the US dollar rose yesterday, and the market exchange rate rose accordingly. As a result, yesterday's rise was largely reflected in the passive appreciation effect brought about by the depreciation of the US dollar. Whether the US dollar will continue to go down remains to be further observed. In addition, the focus of next exchange market will turn to the Sino US trade negotiations at the end of the month, and the final result will remain uncertain. Therefore, in the short term, the RMB exchange rate may not have the basis for a sustained strong rebound, and the probability of maintaining regional fluctuations before and after the Spring Festival is greater.


Wang Youxin said that the renminbi exchange rate is expected to rise again this year. Last year, the depreciation of the RMB exchange rate was mainly caused by external shocks, including Sino US trade friction and other factors. Judging from this year's situation, the main factors affecting last year will be changed. First, trade frictions between China and the United States have eased up and are moving in a positive direction. The market is expected to improve. The rapid rise in exchange rate in the last two days is reflected. Two, the downward pressure on US economic growth has increased, and the Sino US economic cycle has been gradually converging. In the second half of this year, with the gradual emergence of favorable policies, the Chinese economy is expected to stabilize, and the US economic pressure will become more apparent. Three, the Fed's interest rate slowed down, the dollar index callback, the US 10 year treasury bond yield plummeted, and the spread of the US interest rate widened again. Therefore, the main external pressures of the last devaluation stage will all improve and will drive the RMB exchange rate to strengthen.


Turning to this year's follow up trend of the RMB, Wang Youxin said that from the point of view, the first half of the year is affected by factors such as negotiation and monetary policy, and so on. The RMB will show a dynamic trend in the interval, and the US and China's economic situation will change dynamically in the second half of the year. The downward pressure on US economic growth will rise further, and the exchange rate will steadily increase. On the whole, the whole year is strong.


Wang Qing said that in 2019, monetary policy put more emphasis on "I am the main force", and monetary policy will play a leading role in the counter cyclical adjustment. The RMB exchange rate will maintain moderate elasticity. On the one hand, this is the inherent requirement of adhering to the direction of RMB exchange rate marketization reform, and on the other hand, it also helps absorb the possible impact of external risks on macroeconomic operation. This means that "maintaining a basically stable RMB exchange rate at a reasonable and balanced level" does not mean that the exchange rate is bound to stick to a specific point or specific interval. It can be determined that the central bank will continue to implement various counter cyclical measures to curb the herding effect in the foreign exchange market in view of stable expectations and stable finance. Cross border capital management, as the last line of defense, will ensure that the fluctuation of the RMB exchange rate is in a controllable range.