The main reason for the decline of offshore RMB is the fluctuation of European and American currencies

28 2024/3

image.pngOn March 22, the offshore RMB against the US dollar exchange rate fell below the 7.23, 7.24, 7.25, 7.26, and 7.27 levels one after another during trading. As of the time of the reporter's press release, the lowest intraday drop was 7.2751, a drop of over 500 points, which also set a new low since mid November last year. Industry insiders told reporters that this is mainly due to a reversal in market expectations and fluctuations in European and American currencies, such as the unexpected interest rate cut by the Swiss central bank combined with the recent rise of the US dollar, which has widened the volatility of the renminbi.

Industry insiders point out that although China's economy has maintained stable growth, the renminbi is facing certain depreciation pressure due to multiple factors such as changes in the international environment and trade frictions. On the one hand, it is the fluctuation of the US dollar index. At present, the fluctuation of the RMB exchange rate is significantly smaller than that of major currencies such as the US dollar, and market sentiment has remained stable. However, this depreciation is more of a short-term sentiment trading. Zhou Maohua, a macro researcher at the Financial Market Department of Everbright Bank, told reporters that currently, most of the central bank policies in developed economies rely on data guidance, resulting in unclear policy paths, large short-term market divergence and intense fluctuations, and the RMB market is inevitably subject to certain disturbances.

On the other hand, the unexpected interest rate cut by the Swiss central bank is also another factor leading to a decline in the offshore renminbi exchange rate. On a news level, the Swiss central bank lowered its key policy interest rate from 1.75% to 1.5%, which surprised the market and led to widespread expectations that the European Central Bank and the Bank of England may also take early rate cuts. This also indirectly led to a decline in the exchange rate of the Chinese yuan against the US dollar.

"The unexpected interest rate cuts by European and American economies reflect the pressure on fundamentals in Europe and America. In this situation, the renminbi and assets are more 'competitive', and the impact of the Swiss central bank's unexpected interest rate cuts on the renminbi exchange rate is still transmitted through the push up of the US dollar index." Zhou Maohua believes that from a macro fundamentals perspective, the environment faced by the renminbi is relatively favorable. This is mainly reflected in the smooth domestic economic cycle, strong support from macroeconomic policies, and the economy is expected to improve; The resilience of foreign trade and the trend of RMB asset valuation recovery are expected to maintain basic balance in international payments; The central banks of developed economies have entered a new policy cycle, which has constrained the upward space of the US dollar.

Industry insiders have also pointed out that although the domestic macroeconomic situation will further return to a normal operating level in 2024, and the internal depreciation pressure of the RMB tends to weaken, it is important to be wary of the possibility of a soft landing of the US economy within the year, and there is a risk of re inflation in the second half of the year. For example, from the current perspective, there is a risk that the Federal Reserve may not be able to fulfill the expected 75 basis point interest rate cut this year, which may lead to a reversal of market expectations and a resurgence in the US dollar index and US bond yields.


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