What is the new bottom line for the RMB to refresh the 6-year low market?

[The quicker adjustment of the RMB exchange rate may end a wave of downward trend more quickly, ushered in a relatively stable period of time, and at the same time avoid the expectation of a long-term "weakness" of the RMB]
On the first trading day after the 11th "Golden Week", on October 10th, the central parity of the RMB unexpectedly fell sharply, opening the onshore and offshore RMB depreciation channels. Since then, not only 6.70 "iron bottom" has been easily penetrated for two consecutive days. The shore of the renminbi once fell to 6.7230, repeatedly refreshing the new low in six years.
Just as the market began to accumulate concerns about the continued depreciation of the renminbi, on October 12, on the premise that the central parity continued to depreciate significantly, there was a clear sign of a rebound in onshore and offshore renminbi. "This scene is familiar. When the new exchange reform was carried out on August 11 last year, the central bank completed the blitzkrieg in three days, and the renminbi depreciated by 3% to reach a new equilibrium. At the beginning of this year, when the Fed first raised interest rates and other external factors caused the renminbi to depreciate again quickly, the central bank On the fourth day, the paper reiterated that 'there is a basis to keep the exchange rate relatively stable', reversed the market depreciation expectation, and the exchange rate rebounded." A foreign exchange trader of a commercial bank in Beijing told the "First Financial Daily" reporter.
Wang Wejie, director of China Wealth Management Investment Strategy of Standard Chartered Bank, also said in an interview with the “First Financial Daily” reporter that the faster adjustment of the RMB exchange rate may end a wave of downward trend faster and usher in a relative period of time. Stable, while avoiding the expectation of a long-term "weakness" in the renminbi. “Like the new exchange rate reform, the central bank’s one-off “correction” of the renminbi may be more in line with the characteristics of the Chinese market, avoiding excessive speculation and effectively releasing the depreciation pressure quickly.”

The renminbi breaks the losing streak
On October 12, the central parity of the RMB against the US dollar was again lowered by 160 points to 6.7258. Under the pressure of a strong US dollar and other non-US dollar currencies, the RMB mid-price exchange rate has been reduced for seven consecutive trading days since September 27, a new low since September 14, 2010.
Just as the market worried that the low price of the middle price will open a new day of the yuan, yesterday's offshore renminbi (CNH) unexpectedly reversed the trend of rapid depreciation at the opening of the day. The intraday trading was always on the upswing, and the lowest renminbi was 6.7312. To 6.7178. As of 17:40, the offshore RMB was quoted at 6.7216 against the US dollar, 0.11% higher than the previous closing price of 6.7288.
Different from the continued rise in the offshore market, yesterday's onshore Renminbi (CNY) showed a trend of “first suppress and then rise”. Until 1 hour before the close, the RMB was always in a depreciation channel. After the opening, it quickly reached the lowest point of 6.7230, and then rebounded. Until 15:30, the renminbi quickly appreciated, eventually closing at 6.7139 at 16:30, compared with the closing price of the previous trading day of 6.7148 microliters 9 basis points. The industry generally believes that although the renminbi rebounds slightly, it can change the continuous depreciation expectation of the market, which will play a positive role in the stability of the RMB exchange rate.
The above-mentioned foreign exchange traders told this reporter that the renminbi stabilization and recovery in the onshore and offshore markets yesterday was actually traceable.
Yesterday, Hong Kong interbank RMB inter lending rates rose sharply. Overnight offshore RMB Hibor rose 82 basis points to 2.8284%, the highest since September 21; one week offshore Hibbit Hibor rose 262 basis points to 6.761%, hit September 20 The new high has meant that offshore renminbi liquidity is tight.
“It is not ruled out that the four major banks will increase the liquidity of the RMB exchange rate in the offshore market. The renminbi has experienced several rounds of decline since last year. Usually, the offshore market has quickly tightened its liquidity, and the offshore renminbi has rebounded rapidly, reversing market expectations. On the shore, the renminbi will pick up,” the foreign exchange trader said. “Although Hibor’s soaring is not ruled out by market speculative forces, the renminbi’s empty side of the offshore market has been significantly reduced by several powerful attempts by the central bank.”
Regarding the reason for the plunge in the RMB after the holiday, Guan Tao, former director of the International Balance of Payments Department of the State Administration of Foreign Exchange, said recently that this was related to the operation of the new mechanism and the external turmoil during the National Day.
“A series of events affecting the foreign exchange market during the National Day holiday, including the sharp appreciation of the yen and the determination of the Brexit agenda, have certain effects on the trend of the RMB exchange rate after the holiday.” Guan Tao believes that the central bank will operate under the new mechanism. The tolerance of the renminbi exchange rate volatility has increased significantly, and it also means that the renminbi exchange rate is further moving towards marketization.

6.8 Become the new bottom line of the market?
After the 6.70 "iron bottom" was penetrated, the market began to speculate on the central bank's next psychological bottom line.
Zhang Jun, chief economist of Morgan Stanley Huaxin Securities, told the reporter of China Business News that the central bank did not deliberately adhere to the psychological barrier of 6.7 in the short-term fluctuations of the overseas market exchange rate in a short period of time. The market has signaled that it seems that at least 6.7 is not at the bottom of the RMB exchange rate, and the central bank can tolerate a wide range of two-way fluctuations in the future.
"We don't think that the break in the middle price means that the RMB exchange rate will continue to weaken, and it is not considered that the central bank is deliberately guiding the depreciation of the RMB exchange rate to release pressure." Zhang Jun believes that in the context of the Fed's interest rate hike expectations at the end of the year, including the RMB. Emerging market currencies do have pressure to depreciate, but there are also many positive factors to be seen, including signs that the Chinese economy has stabilized and rebounded at the end of the third quarter, and the RMB was officially included in the SDR on October 1. Strengthening overseas confidence in RMB assets and exchange rates will, to a certain extent, hedge the negative impact of the Fed’s interest rate hike.
It is worth noting that on June 30 this year, a foreign media report triggered a rapid depreciation of the renminbi.
According to the report, according to sources, the People's Bank of China is willing to let the yuan depreciate to 6.8 this year, but the premise of allowing depreciation is that the depreciation is expected to be within the control. At the same time, the source said that the central bank will guarantee the gradual depreciation of the renminbi, but also worried that the devaluation of the renminbi will lead to capital flight and criticism from trading partners.
The news came out, resulting in about 3 pm on June 30, the offshore renminbi plunged about 400 basis points in less than half an hour, from 6.6600 to 6.7078, the onshore renminbi against the US dollar spot exchange rate also appeared more than 100 points. Plunge.
For this report, the central bank responded quickly in the afternoon. The central bank issued a statement reaffirming that China does not intend to increase the competitiveness of the trade by depreciating the RMB exchange rate. The fundamentals of the Chinese economy determine the basis for the long-term depreciation of the RMB. China will unswervingly push forward the reform of exchange rate marketization and further play a decisive role in the formation of the exchange rate. The RMB exchange rate will continue to operate in an orderly manner based on market supply and demand and with reference to a basket of currencies. Basically stable at the equilibrium level.
Zhang Jun believes that the judgment of the future trend of the RMB exchange rate, in addition to the influence of external factors, depends to a large extent on the fundamentals of the domestic economy.
At present, the domestic economy's steady growth policy effect at the end of the third quarter has gradually emerged. In particular, the macroeconomic data in August reflects the trend of economic stabilization and recovery. Zhang Jun believes that China's annual economic growth rate of 6.5% should be no suspense, and it is expected to be specific. The growth rate should be between 6.6% and 6.7%.
Under this growth rate assumption, it is expected that the central bank's tolerance for the RMB exchange rate volatility will increase before the end of the year, and may be relaxed to the psychological line of 6.8.
"The logic behind this is simple: that economic growth stabilizes the government with more confidence and confidence in the market-oriented reform of the RMB exchange rate," Zhang Jun said.

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