Since December, the central parity rate of the RMB against the U.S. dollar has increased by 36 basis points cumulatively; in terms of market exchange rates, the onshore and offshore RMB exchange rates against the U.S. dollar have both risen above 7.10 yuan during the session… Recently, the RMB exchange rate against the U.S. dollar has shown a clear rebound trend.
As the RMB exchange rate continues to strengthen, foreign capital under securities investment has generally resumed net inflows. Experts say that as China’s long-term economic development prospects improve, the attractiveness of China’s assets is expected to gradually increase.
Accumulation of multiple favorable factors
Since December, the central parity rate of the RMB against the US dollar has generally increased. According to data from the Foreign Exchange Trading Center, on December 19, the central parity rate of the RMB against the US dollar was 7.0982 yuan, a cumulative increase of 36 basis points compared with the end of November. Since December 15, the central parity has exceeded the 7.10 yuan mark for three consecutive days.
In terms of market exchange rates, since December, the exchange rates of onshore and offshore RMB against the US dollar have both exceeded the 7.10 yuan mark during the session. Wind data shows that as of press time, the highest exchange rate of onshore RMB against the U.S. dollar since December was 7.0955 yuan; the highest exchange rate of offshore RMB against the U.S. dollar was 7.0977 yuan.
Investigating the reason, Li Liuyang, a foreign exchange expert at CICC, said that U.S. bond yields and the U.S. dollar index have fallen significantly, and the RMB exchange rate has strengthened slightly, supported by the weakening of the U.S. dollar.
From the perspective of internal factors, Zhou Maohua, a macro researcher at the Financial Markets Department of Everbright Bank, said that my country’s domestic demand continues to recover, the fundamental recovery momentum is further consolidated, and positive factors are accumulating.
In addition, the seasonal increase in demand for foreign exchange settlement at the end of the year may provide demand for RMB in the foreign exchange market. Judging from the situation of foreign exchange settlement and sales by banks on behalf of customers since 2018, towards the end of the year, the demand for foreign exchange settlement represented by enterprises may increase seasonally, driving a certain size of surplus in the settlement and sales of foreign exchange by banks on behalf of customers during the same period, providing actual demand for RMB. As the new year approaches, the demand for foreign exchange settlement is expected to experience seasonal growth.
Maintain basic stability at a reasonable and balanced level
Looking forward to next year, industry insiders have raised their expectations for the exchange rate of the RMB against the US dollar next year.
Ming Ming, chief economist of CITIC Securities, said that from the perspective of internal factors, as the policy continues to exert force, the domestic economy stabilizes and rebounds, and the fundamental support for the exchange rate may gradually become more prominent; from the perspective of external factors, the Federal Reserve is expected to cut interest rates for the first time in 2024. External pressure on the RMB is expected to ease in the middle of the year or later. It is expected that the exchange rate of RMB against the US dollar will fluctuate widely between 6.90 yuan and 7.30 yuan next year.
The macro research team of Soochow Securities predicts that the RMB exchange rate against the US dollar will appreciate moderately next year, and the whole year will show the characteristics of “high at the beginning and end of the year, and low in the middle”, rising above 7.0 yuan in stages.
Overall, the RMB exchange rate will remain basically stable at a reasonable and balanced level, and the supply and demand in the foreign exchange market will maintain an overall balance. As Wang Chunying, deputy director and spokesperson of the State Administration of Foreign Exchange, said, the favorable conditions facing my country’s economic development outweigh the unfavorable factors, and the foundation for the smooth operation of the foreign exchange market is more solid. “The basic trend of my country’s economic recovery and long-term improvement has not changed, and the economic fundamentals will strengthen the support for stable cross-border capital flows; the market expects that the Fed’s interest rate hike process is approaching the end, and interest rates may gradually start to be cut in the future. U.S. dollar interest rates, The exchange rate is expected to fall overall. As the internal and external environment improves, my country’s foreign exchange market will have more foundation and conditions to maintain smooth operation in the future,” she said.
Net inflows of foreign capital under securities investment resumed
With the recent strengthening of the RMB exchange rate, foreign capital under securities investment has generally resumed net inflows.
Guan Tao, global chief economist of BOC Securities, said that in November, the willingness of foreign investors to allocate RMB bonds increased significantly. The net inflow of funds under Bond Connect was 251.3 billion yuan, with interbank certificates of deposit and treasury bonds being the main contributors; there was a net outflow of funds under Southbound Trading. The scale has shrunk significantly to 1.8 billion yuan, and foreign capital under securities investment has generally resumed net inflows.
China Galaxy Securities reported that in November, the capital and financial account deficit narrowed significantly by US$17.7 billion from the previous month. Securities investment ended four consecutive months of deficit and turned into a surplus of US$13 billion. In November, the net increase in domestic bond holdings by foreign investors reached US$33 billion, the second highest level in history. Foreign capital has flowed in net for three consecutive months under Bond Connect. In November, foreign-funded institutions mainly increased their net holdings of treasury bonds by 112.8 billion yuan, interbank certificates of deposit by 86.7 billion yuan, and policy bank bonds by 49.4 billion yuan.
“At the end of November, the inversion of the interest rate differential between China and the United States converged by nearly 60 basis points from the October high. At the same time, the U.S. dollar index began to fluctuate downward in October, coupled with the increase in domestic stabilizing growth policies, the RMB appreciated by 2.6% against the U.S. dollar in November. From the perspective of exchange gains and losses, “Look, it will also help drive foreign capital to increase its holdings of RMB bonds.” said Yu Lifeng, senior analyst at Oriental Jincheng Research and Development Department.
“In the future, there will be more positive factors supporting overseas institutions to continue to increase their holdings of RMB bond assets, and foreign investors may continue to increase their holdings of RMB bond assets in the medium to long term.” Ming Ming believes.
2023-12-20 01:29:39
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