Guest Commentator of CFETS
On November 30, 2016, the CFETS RMB exchange rate index closed at 94.68, gaining 0.49 percent from the end of October; the RMB exchange rate index based on the BIS basket and the RMB exchange rate index based on the SDR basket closed at 95.95 and 95.26 respectively, gaining 0.93% and losing 0.27% from the end of October. The monthly trend shows that, most of November, the CFETS RMB exchange rate index moved above 94 with relative small fluctuations. Generally, two of the three indices appreciated and one depreciated since the end of October. RMB appreciated against a basket of currencies.
Since the beginning of November, affected by a number of factors such as further recovering US economy and the optimistic atmosphere resulted by Donald Trump winning the US 2016 election, market expectation of Fed raising interest rate in December was strengthened. What is more, market participants also adjusted their estimates of the extent and frequency of Fed’s future rate-hike. US dollar soared and the DXY index reached a 14-year-high of 102.05 in the middle of November, gaining 3% during the whole month. Almost every major currency depreciated against USD. In November, Japanese Yen, Euro and Swiss Franc depreciated 8.42%, 3.57% and 2.78% against US dollar respectively; Turkish Lira, Mexican Peso, Malaysian Ringgit, Brazilian Real and South African Rand lost 9.99%, 8.31%, 6.10%, 5.67% and 4.40% against US dollar respectively. Influenced by the changes of external environment, RMB also depreciated 1.69% against US dollar in November. However, this depreciation is relatively small compared with other major currencies. RMB kept appreciating slightly against a basket of currencies, which indicates its stable characteristics of a strong currency in the international monetary system.
Currently, the market has nearly reached a consensus that Fed will raise interest rate in December, and the DXY index shows a high consolidation. However, affected by incidents such as the defeat of Italy’s constitutional referendum, there is still much uncertainty in the future movements of US dollar. Looking at the domestic economy, more and more positive changes and highlights appeared. Positive progresses were made in “cutting overcapacity and excess inventory, deleveraging, reducing costs and strengthening points of weakness”. Industrial sector, investment and consumption grew stably, and the development progress of the service sector accelerated. In November, the official manufacturing PMI index further increased to 51.7. Although dropped slightly compared with the previous month, the Caixin PMI index still stays within the expansion range. Since historically the fourth quarter was usually the peak season of China’s export, trade surplus is expected to remain high. Along with the opening up of the bond market and RMB’s inclusion into the SDR basket, the positive effects on capital inflow resulted by foreign investors building up RMB bond positions will also appear gradually. In general, the RMB exchange rate has good conditions to remain basically stable at an adaptive and equilibrium level.
