A Rational Point-of-View is Recommendable About the Two-way Fluctuations of the RMB Yuan

The exchange rate of RMB Yuan has been going downwards since mid-June. In particular, during this period, the USD also experienced a series of decline, and the RMB exchange rate against the USD continued to depreciate, which significantly increased the market's concern about the trend of the RMB, and there was no lack of rumor of "Breaking 7". But July 3rd was bound to be a rough day. At one point in the morning, both onshore and offshore RMB fell below 6.7. Then Yi Gang, governor of the people's bank of China called out to the market to boost confidence. The RMB bounced back quickly in the afternoon, surging up about 700 points, and then delivered a series of important policy signals at the first meeting of the new finance committee in the evening. By 8 PM that day, the Yuan recovered 6.65 mark. Subsequently 4, 5, the RMB continues to stop the momentum of recovery.

A series of complex data are projected on the Chinese citizens. The most direct question is: will the tuition fee rise or fall next semester? Is the money sent home more or less? Do import and export business is to lose is to earn... Therefore, the continuous adjustment of the exchange rate will inevitably give rise to panic, and even fear that the RMB will have a sustained substantial decline. In fact, with the advance of the market-oriented reform of the RMB exchange rate, such two-way fluctuations will become the norm, and it is normal to have rises and falls in the short term, which does not mean that it will evolve into a long-term depreciation trend. Therefore, there is no need to worry excessively about the devaluation of the RMB.

This round of RMB adjustment is influenced by some fundamental factors and also shows the superimposed resonance brought by external uncertainties and expectations.

First, the U.S. economy continues to improve, with expectations that the fed will raise interest rates at a faster pace, keeping the post-dollar rally strong. This year, from Argentina, Brazil to India, Indonesia and even South Africa, Turkey, have been hit by the strong dollar, the collective bond exchange into the "three kill" dilemma. China, though linked to a basket of currencies, has a stronger market link to the dollar. A stronger dollar makes sense, as does a weaker RMB.

Second, the seemingly track economic recovery of the European Union still has hidden dangers. The weak inflation and the "double Brexit" risk caused by the political disorder in Italy also make the market lack of confidence in the euro zone and have the risk aversion to short the euro. Uncertainty over the euro also pushed the dollar higher.

In addition, the United States provoked trade disputes with many countries, the United States and Europe, the United States and Japan, the United States and Canada because the United States imposed steel and aluminum tariffs and fell into trade conflicts. Both the "confidence" of the us one-on-one hit world and the risk aversion in the markets give reasons for the dollar's strength.

They all say that "confidence is more important than gold". In the future, the strength of the USD is expected to continue, while the RMB will continue to face adjustment pressure.

On the way to the recovery of RMB in recent days, the new financial stability and development committee of the state council was established and held a meeting to inject confidence into the market. For the current financial situation, the new financial committee gave a judgment - financial supervision system construction and financial risk disposal achieved positive results; The meeting also provided some insight into the future direction of financial development -- we will fight to prevent and defuse major risks, advance financial reform and opening up, maintain a prudent and neutral monetary policy, and ensure that financial markets are reasonably liquid...

When it comes to the exchange rate, the official message from China is:

First, the fundamentals of China's economy are sound and its economic growth is more resilient. These fundamentals provide conditions and confidence for the healthy development of the capital market and will more effectively prevent systemic financial risks. If the U.S. economy is strengthening enough to keep the dollar strong, China's steady growth ensures that the Yuan's risks are manageable.

Second, the people's bank of China has the experience, preparation and means to deal with all kinds of potential shocks and risk factors. This includes the fact that China has achieved some results in strengthening financial supervision and financial support for the real economy is increasing. China's monetary policy independence is strong, still adhere to the "prudent neutral"; Cross-border capital flows will remain basically stable and China has sufficient foreign exchange reserves.

The long negative line drawn by the RMB exchange rate in June has done nothing to shake foreign investors' confidence in piling up domestic bonds. It shows that the market is still optimistic about the future of China's economy.

On July 6, the us will impose tariffs on tens of billions of dollars of Chinese goods, according to the trump administration's announcement. Markets are already pricing in a possible new round of devaluation. But for China, the rate of rise and fall is temporary, and the road to financial reform is a long-term, the lifting of a trade dispute will not be shaken or affected China to continue the road of reform and opening to the outside, with abnormal fluctuations in financial markets and to prevent the risk of external shocks, the Chinese natural "comprehensive have the confidence to keep the RMB exchange rate at a reasonable level of basic stability".

Extended reading: AI Translation.