RMB Exchange Rate Rollout Again

On the last trading day of 2015, the roller coaster market was staged again.

In December 31st, the offshore RMB against the US dollar dropped sharply around 9:00 at about 9:00 in the morning, and it dropped 140 basis points at 6.5872.

However, the reversal occurred at around 3 p.m., which again raised 200 basis points, narrowing to 50 basis points.

Since 2015, the offshore renminbi has depreciated to 5.71% against the US dollar.

In December 31st, the offshore RMB against the US dollar dropped sharply at about 9: 00 in early trading, and it dropped 140 basis points at 6.5872.

However, the reversal occurred at around 3 p.m., which again raised 200 basis points, narrowing to 50 basis points.

Since 2015, the offshore renminbi has depreciated to 5.71% against the US dollar.

On the same day, the RMB in the onshore market also fell to the US dollar. After opening, it fell 30 basis points, the latest 6.4937, and the trend is relatively stable.

The decline has been 4.64% since 2015.

In December 30th, the offshore RMB against the US dollar once fell below the 6.6 barrier, the lowest since January 2011.

The price difference between offshore and onshore RMB has been reduced to nearly 766 basis points from nearly 1200 basis points of the previous day.

At the same time, the Central Bank of China kept the central parity of RMB for fourth consecutive days, and the yuan was 6.4936 against the US dollar on that day, the lowest since May 2011.

"In view of the fact that the RMB exchange rate is still overvalued and China is facing the pressure of massive outflow of funds, we expect that the RMB will continue to depreciate. In 2016, the value of the RMB against the US dollar may depreciate to about 7."

Pu Yonghao, chief investment officer of Hongyuan capital, admitted in an interview with the 21 media.

According to a report released in mid 12 by the International Finance Association (IIF), China's capital outflow will reach a record $500 billion in 2015.

IIF said that in the fourth quarter of 2015, China's capital outflow might be 150 billion dollars, and the third quarter capital outflow would be as high as 225 billion US dollars.

Zhu Haibin, chief economist of JP Morgan, pointed out that the RMB exchange rate may still be overvalued by about 5%-10%, and that the RMB's devaluation expectation and capital outflow make it difficult for the PBC to adopt a more active interest rate reduction policy.

He continued that according to the long-term goals of the PBC, one way out is to improve the flexibility of the exchange rate regime.

"We believe that this will be pushed forward by abandoning the renminbi's pegging to the US dollar and turning a clear bet on a basket of currencies.

The timing of such shifts can be based on positive data and market sentiment about China.

The second quarter of 2016 may be a time window.

According to the new mechanism, we expect the US dollar / RMB to depreciate by 3%-5% and reach 6.70 by the end of 2016. "

Some market participants believe that the central bank can choose a relatively small time window for Christmas and New Year holidays, so that the devaluation pressure of RMB will be "cleared" to a certain extent.

Zhou Hao, a Chinese economist at Commerzbank, said that in the past, it was not the first time to take action on the last few days before the new year.

In 2010 and 2011, when the market saw more renminbi, the central bank seemed to tend to release the appreciation pressure at the end of the year.

In this regard, Liu Dongliang pointed out: "the depreciation of the renminbi is not expected to be cleared in such a short time. In 2016, there is still room for depreciation of the 5%-10%. If the central bank takes positive intervention measures, it will probably control the depreciation rate by about 5%."

Meanwhile, foreign media quoted sources as saying that the Central Bank of China has conducted window guidance on individual foreign banks and suspended them.

And its participation in internal and external exchange business to the end of March 2016, the suspended foreign exchange business includes spot stock.

"There are arbitrage behaviors in some cross-border RMB business, there is no real trade background, and these behaviors have affected the prices of onshore and offshore markets, which have caused interference to the market."

Liu Dongliang believes that after the successful RMB "basket",

Gradually reducing the intervention in the foreign exchange market.

However, in the context of the appreciation of the dollar, the dramatic rise of the renminbi has triggered speculation that the central bank will "defend" the renminbi exchange rate.

In December 30th, the offshore RMB / USD traded for a five year intraday low of 6.6105 in the Asian trading session, but there was a big reversal around 4:00 p.m.

The U.S. dollar rose nearly 500 points in just 50 minutes, creating a new high of 6.5629.

"Usually, the market is quiet before and after holidays. Because of small volume, small bills or sales orders are easy to cause greater volatility in the market. It is difficult to judge the result of intervention by the central bank."

Liu Dongliang, senior analyst at China Merchants Bank financial headquarters, told our correspondent.

He added, "in the past month, we have seen the central bank constantly reduce its intervention in the market.

But once the market continues to fall, the central bank is likely to intervene.

The purpose of intervention is to ease the pace of depreciation rather than reversing expectations.