What is the reason for the appreciation of RMB under the expectation of the Fed’s interest rate hike?Is it possible to go to 1:1 in the future

2022-07-23 0 By

What is the reason for the appreciation of RMB under the expectation of the Fed’s interest rate hike?The RMB almost hit a 45-month high against the US dollar in late January, pealing around 6.3246, but this is not quite consistent with the past, as we all know that the Federal Reserve has made it clear that it will raise interest rates several times in 2022 in order to combat rising inflation.And some developed countries in Europe have opened up the pace of rate increases, and we in order to deal with the difficulties of the economic downturn, clear will continue to cut interest rates, under normal circumstances, does not appear renminbi appreciation, should is weakening, but the really signs appeared certain to appreciate, that the only reason is that the renminbi assets can explain snapped up by both at home and abroad,This, in turn, has led to a passive appreciation of the renminbi.Since RMB is being snapped up and appreciating, it is necessary for us to understand why RMB assets are being snapped up and what kind of assets are being snapped up. If the RMB continues to appreciate in the future, will it possibly rise to the same purchasing power as the US dollar? What does it mean for us?First of all, in the near year end when the renminbi was substantial revaluation, roughly because of two reasons, one is strong at the end of the settlement of exchange demand, namely every time by the end of the year, a large number of enterprises have to the demand of the dollars into RMB, if RMB no obvious increase of market,It will lead to the passive appreciation of renminbi assets, reason is easy to understand, because we have already become the world’s largest trading nation, many enterprises in export at ordinary times, account have formed a lot of us dollar assets (because of the main international trade is settled in dollars), by the end of time, firms typically centralized settlement supply model,When salaries and year-end bonuses are paid, there is a lot of demand to convert dollars into renminbi.Another reason for the settlement of exchange is a safe-haven demand of international capital flows, as the fed raising interest rates expected increase, the international variety of asset price volatility will be stronger and stronger, whether it’s stocks, bonds, or the property market, the futures price fluctuation is possible severe, and most asset prices will go down, but money itself has the disadvantages of nature,Some money is not willing to bear the risk of severe price fluctuation will be looking for small assets to hedge, and throughout the global market, able to asset prices stable country only China and the United States, so, part of international hedge funds to choose will be in the hands of money converted into renminbi assets it is not surprising, this is also one of the important cause leading to the short-term renminbi appreciation.Secondly, if the RMB becomes 1:1 against the US dollar in the future, or even has the same purchasing power as the US dollar, will it be good for us?This problem at least it seems to me is not good, here is the most important point is why trade, doing foreign trade friends all know that changes in the exchange rate for import and export is huge, in general, when the exchange rate is conducive to export, import, but not conducive to here someone will say, that the United States compared with our exchange rate has been high,It’s true, but the key point here is that the structure of exports and the status of the currency directly determines whether or not you care much about the exchange rate.Our country export commodities, the overall is still in the end or mid-range clothing, electrical appliances, basic mechanical and electronic products, the characteristics of the goods is low added value, small profits, profit and profit by walk quantity is not stable, this structure is very sensitive to changes in the exchange rate, for example, if you only 10% of the profit space, excluding other factors aside,Every 10% appreciation of the currency reduces profits by about 11%, which is unacceptable for this export structure. This will greatly reduce international competitiveness and industry scale, which will lead to widespread manufacturing unemployment.High-tech but are different from the United States, the United States exports of key commodities is tech goods, such as chips, medicine, computer, aviation equipment and parts, etc., these goods are common feature is the gross margin is extremely high, can even reach the percentage hundred profit space, lower exchange rate higher, will not affect the overall profit, even can be directly addressed by price increases,Because somebody else what you have to use, and our goods are not can not be replaced, only when we export goods can also like the United States is given priority to with high margin of high-tech, and their own financial levels are high enough to adapt to the level of appreciation of the renminbi, so, at least for now, the appreciation of the renminbi is not what is good.Finally, as far as I am concerned, the current trend of RMB appreciation is not sustainable in the short and medium term, because our economy is in a continuous decline. Therefore, it is better for everyone not to bet on the rise and fall of the exchange rate and to be cautious about exchange rate fluctuations.