On October 31, the spot closing price of the onshore RMB against the U.S. dollar fell 420 points to 7.2985, a new low since the 25th. As of 17:20 Beijing time on the same day, the offshore RMB fell below 7.3 against the US dollar and was reported at 7.3176.
On the same day, the central parity rate of RMB against the US dollar also hit a new low. On October 31, the central parity rate of the RMB exchange rate in the inter-bank foreign exchange market was: 1 US dollar to RMB 7.1768, a new low since February 2008.
On November 4, as the U.S. dollar index plummeted, the exchange rates of onshore and offshore RMB against the U.S. dollar both rose sharply and continued to rise. They rose by more than 1,500 basis points from the closing price of the previous trading day, and both recovered the 7.18 mark. Offshore RMB The exchange rate against the U.S. dollar recorded its largest one-day rise on record.
Among them, the closing price of the onshore RMB against the US dollar on the previous trading day was 7.3200, and the highest intraday appreciation was 7.1700 on November 4; the closing price of the offshore RMB against the US dollar on the previous trading day was 7.3321, and the highest intraday appreciation was 7.1780 . As of 22:40 on November 4, the onshore RMB exchange rate against the U.S. dollar was at 7.1788, with an intraday appreciation rate of 1.93%; the offshore RMB exchange rate against the U.S. dollar was at 7.1734, with an intraday appreciation rate of 2.17%.
Faced with the sharp fluctuations in the RMB exchange rate, more and more import and export companies appear to be quite calm. What is the reason for this?
Import companies calmly cope with exchange rate fluctuations
A financial director of a metal processing company in Jiangsu and Zhejiang that needs to import raw materials revealed that in September they locked the average price of foreign exchange purchases for external payments at the end of the year at 7-7.1 through forward foreign exchange swap transactions. Now, even if the RMB exchange rate falls below 7.3, Enterprises will not passively significantly increase the cost of purchasing foreign exchange.
Several bank sources revealed that with the increasing number of import companies involved in foreign exchange hedging, the number of companies making emergency purchases of foreign exchange due to the rapid decline in the RMB exchange rate has dropped significantly compared with the past, which has significantly alleviated the problem of clearing the foreign exchange market.
The latest data released by the State Administration of Foreign Exchange shows that from January to August this year, the total scale of enterprises using foreign exchange derivatives such as forwards and options to manage exchange rate risks was approximately US$1 trillion, a year-on-year increase of 27.6%. The enterprise hedging ratio is higher than that in 2021. It increased by 3.8 percentage points to 25.4%, with more than 23,000 first-time exchange rate hedging accounts, and the proportion of small, medium and micro enterprises using derivatives further increased.
“This has also completely frustrated overseas speculative capital’s short-selling RMB arbitrage calculations. Because they found that their behavior of significantly lowering the offshore RMB exchange rate was difficult to trigger greater short-selling orders to follow suit. In addition, the steady development of China’s economy has always made the RMB exchange rate gain a strong After the RMB exchange rate rebounded rapidly, they could only admit their losses and leave the market.” A Hong Kong bank foreign exchange trader pointed out.
A director of the financial markets department of a joint-stock bank said that although the domestic onshore RMB exchange rate once fell to 7.3095, the vast majority of import companies were quite calm about this.
“In the past, if the RMB exchange rate quickly fell below 7.2, 7.3 and other integer marks, import companies have taken emergency foreign exchange purchase and stop-loss measures. But now, many import companies have already locked in the foreign exchange purchase price for future external payments through foreign exchange hedging, and only reserved By reducing a small portion of risk exposure, the pressure for emergency foreign exchange hedging will naturally be greatly reduced,” he pointed out.
It is reported that as import companies’ awareness of exchange rate risk neutrality increases, their foreign exchange hedging ratios are continuing to increase. In the past, they only accounted for 30% of the foreign exchange purchase amount locked through forward foreign exchange swap transactions. However, since the beginning of this year, the RMB exchange rate has continued to fall due to the continued strength of the U.S. dollar. Now, their foreign exchange hedging ratio generally exceeds 70%, leaving only about The 30% foreign exchange risk exposure makes them more comfortable with the severe fluctuations in the RMB exchange rate this week.
In addition, there are two important factors for import companies to calmly cope with the sharp fluctuations in the RMB exchange rate this week. First, the import channels of many import companies are becoming increasingly diversified, and they have increased the scale of import procurement with European, Japanese and other companies, and use Euro and Japanese Yen as the settlement currency for import trade. Since the RMB has remained “strong” against non-U.S. currencies such as the euro and the Japanese yen this year, the cost of foreign exchange purchases by these import companies has been reduced; secondly, many import companies have tried to expand the proportion of cross-border trade settlement in RMB since this year, effectively Reduce their exchange risk.
The willingness of export enterprises to settle foreign exchange is also very stable.
It is worth noting that although the RMB exchange rate once fell below the 7.3 integer mark this week, the willingness of many export companies to settle foreign exchange is also quite stable.
A financial director of an electronic product export company pointed out that although the current RMB exchange rate is higher than the execution price of foreign exchange hedging settlement they had previously set, they do not care. On the one hand, they can choose not to execute the foreign exchange hedging contract and obtain higher exchange settlement income. On the other hand, corporate executives believe that the two-way fluctuation of the RMB exchange rate is the main theme. Enterprises may not be able to operate accurately every time to maximize the exchange settlement income. Instead of taking risks and gambling, it is better to “Lock in” the foreign exchange settlement income that the company hopes to see through foreign exchange hedging contracts in advance.
It is understood that as the awareness of foreign exchange hedging among import and export enterprises continues to increase, the recently launched Asian options and…Type options are quite popular among them. The reason is that European options fail to fully meet the foreign exchange hedging needs of enterprises. For example, after a foreign trade company purchases traditional European foreign exchange options, it can only choose whether to exercise the option on the expiration date. Failure to exercise the option may cause the foreign exchange hedging strategy to fail to achieve the expected effect. In comparison, after purchasing American options, a company can choose to exercise the option one day before the expiration date, which can not only improve its own cash flow situation but also achieve the foreign exchange hedging goal; although the settlement date of Asian options is still the expiration date, The reference price is the average market exchange rate during the duration of the option, which can “fit” the foreign exchange hedging needs of foreign trade companies with a stable account period to a greater extent, and the cost of Asian options is lower than that of European options, further reducing the cost of foreign exchange hedging operations for companies.
“This has enabled many import and export companies to more calmly cope with the sharp rise and fall in the RMB exchange rate this week, and has prevented the foreign exchange market from showing obvious signs of chasing ups and downs, which will help the foreign exchange market continue to operate smoothly.” said the director of the financial markets department of the aforementioned joint-stock bank pointed out.
The RMB exchange rate will still fluctuate widely in the future
Looking back at the performance of the RMB exchange rate against the U.S. dollar in October, the central parity rate of the RMB against the U.S. dollar, onshore RMB against the U.S. dollar, and offshore RMB against the U.S. dollar all depreciated to varying degrees.
Most institutions believe that there may still be depreciation pressure on the RMB in the short term. This is also a pressure faced by Asian currencies such as the Korean won and the Japanese yen. After all, the Federal Reserve’s interest rate hikes are far from over. The two major currencies have depreciated by more than 20% and 30% respectively over the past year.
However, in the opinion of many analysts, the recent trend of the RMB exchange rate against the US dollar is still within a reasonable range, and users do not need to talk about depreciation. There is still support for the long-term strength of the RMB. At the same time, based on the double-edged sword characteristics of the RMB exchange rate, depreciation and appreciation within a reasonable range have different impacts on import and export trade.
Regarding the long-term trend of the RMB exchange rate, on October 28, the head of the relevant department of the China Banking and Insurance Regulatory Commission also mentioned that China’s economy is highly resilient, has sufficient potential, and has wide room for maneuver. The current difficulties are caused by unexpected factors. China’s economy will be good in the long term. The trend will not change and modernization is unstoppable. A rising economy will inevitably form a rising currency.
The aforementioned head of the relevant department of the China Banking and Insurance Regulatory Commission pointed out that although there are some unstable factors in the short term, the market status of the RMB will not change, and the long-term strengthening trend of the RMB will not change. my country’s continued international balance of payments surplus and huge net foreign investment will Assets provide a strong guarantee for the stability of the RMB exchange rate. Over the past 30 years or so, all companies and individuals who have been betting on the devaluation of the RMB have suffered losses. If you sell your local currency and buy foreign exchange now, you will definitely regret it in the future.
When talking about the trend of the RMB exchange rate in the next stage, CITIC Securities chief economist Ming Ming said that the future trend of the RMB exchange rate depends on the fundamentals of the domestic economy. Currently, under the influence of a series of favorable policies in the early stage, my country’s economy has obvious signs of stabilization and recovery. The RMB exchange rate will still maintain a pattern of wide fluctuations, and two-way fluctuations are the norm.
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