Guest Commentator of CFETS
On October 31, 2016, CFETS RMB exchange rate index closed at 94.22, gaining 0.16% from the end of September; RMB exchange rate indices based on BIS currency basket and SDR currency basket closed at 95.07 and 95.52 respectively, gaining 0.34% and 0.49% from the end of September. In general, three RMB exchange rate indices have all maintained steady trend with slightly appreciation, CFETS RMB exchange rate index always stand above 94 during October, and the monthly volatility of the CFETS RMB exchange rate index moved relatively in a low level, which turned out to be 2.11%, reflected that the RMB exchange rates remain generally stable against a basket of currencies.
Since October, the global financial market has been experiencing stronger volatility. On the one hand, the US economy is continuously showing better performance, the Fed board governors start to release more messages of rate-hike within this year, the market expectation of the December rate-hike is drastically reinforced; on the other hand, the hard Brexit and Egyptian Pound crash tensed up market and risk aversion is raising again. The Fed rate-hike expectation and market risk aversion have pushed the US Dollar Index increased to the new historical high in 8 months, and gained 3.12% in October. Under the “previous close + movements of a basket of currencies”formation mechanism of USD/CNY central parity, the USD/CNY bilateral exchange rate shall accordingly depreciate to some extent to maintain general stability of RMB exchange rate against a basket of currencies. On October 31, the USD/CNY central parity was 6.7641, losing 1.28% from the end of September; the USD/CNY exchange rate closed at 6.7708, losing 1.49% from the end of September. However, compare globally, RMB depreciated in a rather smaller range than some currencies of the emerging market and of the developed economies. In October, Euro, Japanese Yen and British Pound have lost 2.05%, 3.02% and 4.67% respectively against the US Dollar; Russian Ruble, Singapore Dollar, South Korean Won and Turkish Lira have lost 1.75%, 1.87%, 3.74% and 2.43% respectively against the US Dollar. While the USD/RMB bilateral exchange rate depreciating, the RMB exchange rate against a basket of currencies still remaining generally stable and even showed slight appreciation. Generally, the RMB exchange rate volatility has not aroused excessive tension in the market.
In terms of the next stage, according to the historical experience, the U.S. Federal Reserve rate-hike expectations will often be priced in before rate-hike taking place. There are relatively high uncertainties in the future trend of dollar. Within the existing RMB exchange-rate regime, the USD/RMB exchange rate will continue with the two-way fluctuations, both appreciation and depreciation will be reasonable.However, in general, the economic fundamentals still remain unchanged, such as the medium-high growth of Chinese economy, the current account surplus, the abundant foreign reserve, the well-functional fiscal condition, and the robust financial system. Especially, the supply-side structural reform has made positive achievements; the development of new economic energy is accelerating and the recent economic data has demonstrated the favorable changes as well. In addition, after RMB officially joined the IMF SDR currency basket, the increased RMB assets holding demands also help the balance of cross-border capital flows. RMB exchange rate will be able to remain generally stable at a reasonable and equilibrium level against a basket of currencies.
