expectation2023: The prospect of RMB exchange rate may regain its upward trend

2022-12-20 09:11| Publisher: 2233| see: 580| comment: 0|original author: Gu Yao|come from: Financial Times

abstract: The exchange rate trend next year will change the basis from interest rate parity to inflation and economic prospects. Under the soft world economy, China's economy and prices are relatively stable, so the RMB exchange rate trend may rise.2023In, the exchange rate trend will change the basis from interest rate parity to inflation and economic prospects, while the world economy is biased ...
The exchange rate trend next year will change the basis from interest rate parity to inflation and economic prospects. Under the soft world economy, China's economy and prices are relatively stable, so the RMB exchange rate trend may rise.

expectation2023: The prospect of RMB exchange rate may regain its upward trend947 / author:Gu Yao / source:Financial Times

2023In, the exchange rate trend decided that the basis would shift from interest rate parity to inflation and economic prospects, while China's economy and prices were relatively stable under the pattern of a soft world economy, so the RMB exchange rate trend might recover.

1.Changes in the decisive basis of international exchange rate trend since the epidemic

In the field of international currencyforeign exchangeIn the market, the exchange rate between any two currencies is affected by a variety of factors, and the final performance is the result of the comprehensive effect of various factors. In different scenarios, the role of different influencing factors will change, but no matter which currency and scenario, there will always be some factor playing a decisive role - in a long period of time, this factor affects the trend of the exchange rate.

There are many factors that affect the exchange rate - interest rate difference, inflation difference, poor economic prospects, purchasing power parity, other factors such as balance of trade, exchange arrangements, geopolitics, etc., but for a period of time, it is usually a certain factor that plays a major role in determining the direction of exchange rate changes. Since the outbreak of the epidemic3In years(2020-2022)The factors that determine the trend of the RMB exchange rate against the US dollar have occurred2Times, thus forming3Different exchange rate determination periods: purchasing power determination period, economic determination period, interest rate parity determination period.

Purchasing power determination period:2020Q1-Q2。2020At the beginning of the year, the epidemic situation rose sharply in the world, and the economic operation of all countries was severely hit. The western economies once again offered the "sharp weapon" of monetary expansion, especially the United States, which adopted the double easing method of monetary expansion and interest rate reduction. From the perspective of monetary easing and interest rate changes, compared with RMB and other major national currencies, the US dollar should depreciate according to the interest rate parity model. However, the US dollar exchange rate showed a relative strength. During this period, the exchange rate of RMB against the US dollar was7.0Derogate to7.16, the depreciation rate exceeded2%。 The author pointed out at that time that, based on the changes in the economic and financial situation, the RMB should have a strong appreciation against the US dollar; However, the actual situation that the RMB does not rise but depreciates indicates that a new factor has become the determining force of the current RMB exchange rate, which is the trend change of commodity prices at home and abroad. At the beginning of the epidemic, commodity prices generally fell, and oil prices fell to20dollar/The level of barrels and the purchasing power of the dollar measured by commodities increased, which led to the rise of the dollar. In fact, in the international currency market during the same period, the most powerful currencies are commodity currencies: Australian dollar, Canadian dollar and New Zealand dollar.

Economic base determination period:2020Q3-2022Q1。 Due to the correctness of China's response to the epidemic prevention and control, China's economy has ushered in a wave of "epidemic dividend" - the economy has taken the lead in stabilizing and normalizing in the global economy, and is relatively limited and controllable among the major economies under the impact of the epidemic. Thanks to the relative stability of the economy and the opportunity to accelerate the shift of the world economic center to China, the RMB exchange rate has gone through a long wave4Quarterly appreciation process; Subsequently, due to the relatively stable development of the epidemic, the economies of various countries continued to enter the stage of stabilization and recovery, and the international monetary market began to enter a new period of relative stability2021Since the second half of the year, it has also entered a stable period.

Determination period of interest rate parity:2022Q2-2022Q4。 As the Federal Reserve has entered the process of continuously raising interest rates, the mechanism of interest rate parity has increasingly become a decisive factor in the international exchange market,2022year2After the quarter, the strong position of the US dollar has been strengthened. The author previously believed that the core intention of the US monetary policy after the financial crisis was to "strengthen the US dollar", and maintaining the strong US dollar status was the consistent but most central goal of the US monetary policy. In order to achieve this goal, the US would even hesitate to create a geopolitical crisis, launch a trade war, a science and technology war and other non-financial monetary means. Under the banner of anti inflation, the United States also led the world in raising interest rates, which triggered turbulence in the global exchange market and raised the strong position of the US dollar in the international currency. As far as the RMB exchange rate is concerned, although the epidemic has affected China's economy, the global economic operation pattern has not changed. The world economy as a whole is still in a downturn after the impact of the epidemic. The adverse impact of interest rate increases on the economic prospects of the United States is even greater than the impact of the epidemic on China's economy. It is against the background of continuous interest rate increase in the United States that the interest rate parity mechanism has become the main determinant of the exchange rate trend.

2.2023The basis for determining the annual exchange rate will shift to economy and inflation

With the Federal Reserve's interest rate hike coming to an end, the leading role of interest rate parity in the exchange rate trend will gradually fade, and the impact of other factors on the exchange rate trend will gradually increase. Even if the trend of high inflation in the United States is2023It will remain unchanged in, because the cost of capital rises sharply at the high interest rate, the current operation of the economy will be greatly suppressed; Observed from the generally recognized economic tolerance for interest rate increase in the US financial market(10Year and6From the perspective of monthly US bond yield difference, the space for the US economy to bear interest rate increases has been exhausted - the inverted interest rate curve is obviously not conducive to the normal operation of the US financial and economic systems. This means that,2023In, the pattern of the global interest rate system will be stable regionally, and the interest rate differentials among currencies will tend to be stable.

Due to the failure to consider the change in the basis of exchange rate determination2022Misjudgment of RMB exchange rate trend in. After the global interest rate system has stabilized, the impact of the interest rate parity mechanism on the exchange rate may decline quickly. In the context of the downturn of the world economy, we can judge from all aspects,2023It is difficult for commodity prices to rise and fall sharply in, so the international purchasing power of the US dollar is relatively constant. Therefore, other important factors affecting the exchange rate will mainly reflect inflation and economic prospects. First, the impact of inflation difference on exchange rate will soon be reflected. After the global interest rate system becomes stable, the sensitivity of highly liquid financial capital to the impact of inflation difference will increase; Secondly, the trend influence of the differences in economic development prospects on international capital will once again become the directional influence force of the exchange rate. Under the background of global capital surplus and the general trend of world economic focus shifting to China and the Asia Pacific, international capital will attract emerging economies in the Asia Pacific region such as China.

3.The New Basis of Exchange Rate Trend Determines the Prospect of RMB Exchange Rate Rise

The current round of high inflation in Western economies such as Europe and the United States stems from the "big wage rise" in the West after the epidemic, and the "big wage rise" stems from the widespread "helicopter money" in the West during the epidemic. Different from the prices of energy and raw materials such as bulk commodities, the social, political and economic models in Europe, the United States and the West determine that their labor prices are easy to rise and difficult to fall, so2023The high inflation in the western society dominated by the United States in will continue, and there will be great pressure for the economy to fall into "stagflation".

In order to attract the return of the manufacturing industry under the "big salary rise", the United States can only rely on political intervention, through international pressure and other market distorting means such as mandatory policy restrictions, to allow some high-end manufacturing industries such as chips to return, but the larger mature manufacturing industries will still flow to more competitive places. In the short term, the rising cost of capital in the environment of high interest rates has reduced the current international competitiveness of the European and American economies, shrinking domestic demand, and it is difficult to be optimistic about the prospects for short-term economic growth. Therefore,2023Although the world economy was facing a general downturn in, the Asia Pacific economies and emerging market economies represented by China were obviously more dynamic than the western economies led by the United States; Market vs. Chinese and foreign economy2023The general view of the trend in is that China's economy has recovered slowly from the impact of the epidemic, and the western economy has stagnated under the influence of high interest rates.

From the perspective of the national economy, the first driving force of economic growth investment refers to the formation of fixed capital, that is, national wealth,20It was made clear that the focus of China's economic development should be shifted to the real economy. The power base of real economic growth is more guaranteed. The resilience of economic growth and the prospects for recovery will still lead the world economic growth in the global downturn. Influenced by the epidemic, the stage of "bottom wandering" in China has been prolonged again, and low inflation is the main feature of this stage. Influence2023As for the specific factors of China's inflation in, the international commodity prices continued to decline under the contraction of international liquidity caused by the downturn of the world economy and the shift of the US dollarPPIOr continue to shrink; JustCPIFor example, the price of pork as a key commodity2022yearQ4After that, it has been above the normal range of pig grain ratio, which means that the profitability of breeding enterprises is promising, the supply will increase, and the price will become stable.

To sum up, as the dominant factors of exchange rate trend turn to economy and inflation,2023In, the RMB exchange rate will resume its upward trend. The RMB exchange rate will end because of the better growth prospects of China's economy and more stable prices2022The weak trend of the year, reappearing the trend of steady and partial rise.
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