Recently, the RMB exchange rate has once again weakened.

After the continuous volatility in March and mid-March, the RMB exchange rate has weakened recently. On Monday (March 28), the exchange rate of the RMB against the US dollar hit a new low in the past three weeks. The spot exchange rate and the offshore CNH exchange rate also continued the weak shock pattern in recent trading days. However, analysts pointed out that the weakening of the RMB exchange rate in recent trading days is still mainly driven by the US dollar's revised rebound. At this stage, the expectations of the RMB exchange rate are still relatively stable.

Weak shock
In the context of a slight increase in the US dollar index for the sixth consecutive trading day last Friday, the central parity of the RMB against the US dollar continued to weaken on Monday. China Foreign Exchange Trading Center announced on Monday that the central parity of the RMB against the US dollar on the inter-bank foreign exchange market on March 28, 2016 was 6.5232, a slight decrease of 9 basis points from the previous trading day of 6.5123. As a result, the central parity of the RMB against the US dollar weakened for the third consecutive trading day, and the new low of nearly three weeks since March 4 was refreshed.
On the spot exchange rate, the spot exchange rate of the RMB against the US dollar opened at 30 basis points earlier in the morning and closed at 6.5180. It closed at 6.5160 after a narrow range of shocks throughout the day, down 10 basis points or 0.01% from the previous trading day. It fell in 6 trading days. In the offshore market, on Monday, the exchange rate of RMB against the US dollar CNN in the Hong Kong market was narrowly closed and continued to trade at 6.5250. As of 16:30 Beijing time on March 28, the exchange rate of RMB against the US dollar CNN was 6.5234, which was 15 basis points or 0.02% higher than the previous trading day. The spread between the domestic and current spot exchange rates continued to be at a low level.
For the overall performance of the RMB exchange rate in domestic and overseas markets on Monday, traders said that the recent spot exchange rate of the RMB continued to be stronger than the mid-day price, indicating that the market depreciation is expected to continue to fade, and the central bank’s intervention pressure has also dropped significantly. On the whole, the renminbi is still a key factor affecting the renminbi exchange rate in the past few trading days, while maintaining a basket of currency exchange rate indices. The trend of the US dollar index has been a major factor in the previous few trading days. The weakening of the RMB exchange rate.

Expected to be stable
For the performance of the US dollar exchange rate in recent trading days, Forex trader Futuo said that the US dollar index finally ushered in a "strong return" after last week's continued hawkish speech by the Fed officials. The US dollar index rose against a basket of currencies. On the 6th, it recorded the longest rise in the past year. Last week, several senior Fed officials issued a voice suggesting that the United States may not be far from the second rate hike. Most officials mentioned that the US economy is stable, the job market is strong, inflation will start to rise, and the US economy is able to withstand further interest rate hikes. Overall, several Fed officials collectively called for an early rate hike in the week, suggesting that the Fed has realized that the market has overreacted to the Fed’s dovish statement in March and tried to correct it. In this context, a correctional rise in the US dollar index is also reasonable. However, for the medium-term trend of the US dollar index, the current market mainstream view is still relatively cautious. From the perspective of foreign exchange dealers and other institutions, the pattern of weakening of the US dollar in the medium term has not changed.
In combination with the recent trend of the RMB exchange rate, Industrial Securities said that the recent decline in the central parity of the RMB is not the behavior of the central bank to guide the depreciation, but more reflects the market’s expectation of a stable exchange rate against a basket of currencies. There is a strong reaction. Overall, since March, the correlation between the central parity of the RMB against the US dollar and the US dollar index has reached 0.911, which means that the change in the US dollar is the dominant factor in the recent RMB mid-price. This is completely different from the situation when the “new exchange reform” on August 11 last year and the central parity of the RMB at the beginning of this year were actively depreciated. Considering that the current global economy and the United States itself are unable to withstand the continued strength of the US dollar, the negative impact of the strong US dollar on the RMB exchange rate in the future will be relatively limited.

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