After several months of bottoming, the exchange rate of the Chinese RMB has finally recovered, and will form a wave of appreciation around the end of the year. This phenomenon is mainly due to the increase in financial demand of enterprises at the end of the year, which increases the demand for RMB in the foreign exchange market, which helps to boost the exchange rate.
The exchange rate of the renminbi can be seen as a commodity, just like we usually buy goods such as cars, mobile phones, computers, clothing, shoes, etc. The renminbi, as well as other currencies, is essentially a commodity with special properties. Therefore, the selling price of the renminbi is the exchange rate, which is affected by supply and demand. When we look at the RMB as a commodity, and the change in the exchange rate of the US dollar against the RMB as the payment to buy the RMB commodity, we can more generally understand the expectation of the RMB exchange rate at the end of the year.
For example, we can draw an analogy between the exchange rate of pork and the Chinese yuan. Before and during the Spring Festival, the price of pork is often higher than ten days after the holiday. This is because before the Spring Festival, people need to stock up on pork to meet the needs of the New Year;And during the Spring Festival, some vendors are closed, making it less convenient to buy pork. In the ten days after the Spring Festival, the common people may want to change their tastes, the diet tends to be light, and the demand for pork declines. These changes are caused by the different needs of residents for pork, which is the so-called change in supply and demand, which affects the pork **. Similarly, the renminbi has been under pressure to depreciate for most of this year, with the market expecting the renminbi to fall below 7 against the dollar4, and possibly even down to 75。Residents and businesses tend to hold US dollars and even go to banks to buy foreign currency in the hope of reaping the benefits of the dollar's appreciation. However, it turned out that the bottom of the yuan exchange rate was roughly at 7Around 3, coupled with the advent of the end of the year, the demand for RMB by enterprises has increased, and the "centralized settlement of foreign exchange" brought by this financial demand can be compared to the hoarding of pork by residents before the Spring Festival, which has changed the relationship between supply and demand and promoted the RMB exchange rate.
In addition to the above-mentioned supply and demand factors, interest rates are also one of the important factors affecting the exchange rate. Assuming that the RMB exchange rate against the US dollar is 7, the interest rate on China's domestic government bonds is 2%, while the interest rate on US government bonds is 5%. We can guess what investors will do. In the context of large differences in interest rates, investors usually convert the RMB in their hands into US dollars and buy US bonds to enjoy an interest rate of 5%. Compared with buying RMB bonds, buying U.S. bonds can earn an additional 3 percentage points of interest income. This additional income brought by the interest rate differential will promote the mainstream trend of "selling RMB, **USD" in the foreign exchange market, resulting in the depreciation of the RMB exchange rate. At present, the interest rate on bonds in the United States is still high, which continues to put pressure on the RMB exchange rate to some extent**. At the same time, the "tide of foreign exchange settlement" at the end of the year and the transformation of the economic development momentum of China and the United States are also factors affecting the changes in the RMB exchange rate.
The end of the year is a period when the financial needs of enterprises are concentrated, which will also have a certain impact on the RMB exchange rate. At the end of the year, many enterprises will carry out "centralized foreign exchange settlement", that is, exchange foreign exchange for ** RMB to meet financial needs. This concentration of foreign exchange settlement will increase the demand for RMB in the foreign exchange market, thereby supporting the RMB exchange rate and is expected to promote its appreciation. Similar to the situation of ordinary people hoarding pork before the Spring Festival, the increase in the demand for centralized foreign exchange settlement by enterprises will lead to changes in supply and demand, which in turn will affect the selling price of RMB, that is, the exchange rate.
In addition to changes in supply and demand, interest rate differentials are also an important factor affecting the RMB exchange rate. In the case of large interest rate differences, investors usually tend to convert their RMB into US dollars to buy U.S. Treasury bonds and other U.S. Treasury bonds to obtain higher interest rate returns. This kind of investment behavior will lead to the mainstream trend of "selling RMB, **US dollar" in the foreign exchange market, thereby promoting the depreciation of the RMB exchange rate.
At present, the interest rate on US Treasury bonds is still high, which still has a negative pressure on the RMB exchange rate to a certain extent. However, the "tide of foreign exchange settlement" at the end of the year and the positive momentum formed by the improvement of China's economy and the weakness of the U.S. economy will eventually determine the strength of the RMB exchange rate to a large extent.
In addition to supply and demand and interest rate differentials, the economic trends of China and the United States are also important factors affecting the RMB exchange rate. When the U.S. economy gradually strengthens and China's economy faces downward pressure, the renminbi tends to depreciate. Conversely, when China's economic outlook improves and the U.S. economy weakens, the renminbi exchange rate strengthens.
According to a number of institutions**, in the fourth quarter of 2023, China's GDP is expected to achieve 55% to 57% in real terms, compared to 4.5 percent in the third quarter9%, which is a significant improvement. At the same time, the outlook for the US economy is relatively weak. The annualized growth rate in the third quarter of this year was 49%, compared to the annualized growth rate of 2 in the fourth quarter of this year1% or 22%。The weaker outlook for the U.S. economy is not good for the dollar index and will also have a boost for the RMB exchange rate.
To sum up, the RMB exchange rate is affected by both internal and external factors. The recovery of domestic economic development momentum, the balance of payments and the expectation of stable growth policies, as well as the accumulation of enterprises' willingness to settle foreign exchange at the end of the year, will hedge the pressure on the depreciation of the renminbi and eventually form a wave of appreciation.
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