The US dollar and RMB are rising at the same time! What happens to the logic of market transactions?

Since this week, there has been a considerable period of synchronous rise in the US dollar index and RMB against the US dollar. This rare trend has attracted market attention. Generally speaking, when the euro, sterling and other risk events fall, it will lead to a passive strengthening of the dollar index, which will also often lead to the depreciation of the RMB against the dollar. However, earlier this week, the pound fell sharply due to the break-away storm, during which the RMB rose above 6.9 to reach the 6.8 range, and the dollar index rose to near 97.4 in the same period.



The recent synchronized rise of the US dollar and RMB is closely related to the long-run trend of the trading market against the background of external uncertainties. There is little room for RMB to weaken in the recent market, so even if the dollar index strengthens passively, the trading power still pushes the RMB upward. Zhou Hao, a senior Asian economist at German Commercial Bank, told First Financial Journalist, & ldquo; at least in recent months there is no possibility of breaking 7, so short-selling is of little significance. In addition, technically speaking, there are pressures on the 50-day and 100-day averages, so the US dollar/RMB has no upward momentum. ”



Of course, in the medium and long term, the RMB is not without pressure. A foreign exchange trader at a state-owned Chinese bank told reporters that spot foreign exchange purchases in Shanghai rose 40% year-on-year in November, and demand for foreign exchange at the end of the year and momentum for foreign exchange purchases when the RMB strengthened still exist. Institutions also generally expect that variables such as the Fed's interest rate hike and downward pressure on China's economy will still affect the trend of the RMB in the future.



The synchronous rise of US dollar and RMB < br />


As of December 13, Beijing time, the official closing price of USD/RMB was 6.8690, 203 points higher than Friday's official closing price, 103 points higher than Friday night's closing price and 6.8672 USD/offshore RMB. The USD index fell below 97, mainly due to the good news of Europe and Britain on that day. British Prime Minister Teresa Middot; May won a party vote of confidence to boost the pound; Italy submitted a new budget to the European Union, lowered its fiscal deficit target and boosted the Euro-dollar exchange rate. As sterling and the euro strengthened, the dollar ended its upward trend in the past two trading days.



In the past few days, even against the backdrop of the rise in the dollar index, the renminbi has continued to strengthen. This trend is indeed very rare. The rise of the US dollar and RMB is so uniform that it usually needs significant domestic good news or the intervention of the central bank. ” Huang Jun, foreign exchange analyst at Jiasheng Group, told First Financial Journalist.



However, a number of traders told reporters that the recent mid-price and model calculation points basically fit, and there is no obvious sign of intervention in the market. Even though the external uncertainty has eased slightly before, which has led to RMB sentiment, overall, the dominance of market trading forces is still the main reason for the strength of RMB in recent days.



Influenced by trade and Canadian news, the RMB continued to rise against the US dollar in the early morning of December 12, recovering three ports in a day, reaching 6.88 in both onshore and offshore markets, and 6.87 in the early morning of December 13, reaching 6.8679 in the refresh day, rising 380 points, or 0.55 per cent in the day.



In fact, since November 30 (last Friday), the renminbi has risen nearly 2% against the dollar, making it the third largest emerging market currency among them. As of December 4, the official closing price of the RMB against the US dollar was near 6.84, and it soared more than 1,000 points in a few days. However, the renminbi has since turned weaker, once falling below 6.9. Since this week, market forces have pushed the renminbi up again. Institutions generally expect that the renminbi will continue to oscillate between 6.8 and 6.95 in the next three months.



The recent strength of the dollar index has been passive, especially in the context of the dove signal released by the Federal Reserve. Mei cancelled Tuesday's parliamentary vote on leaving Europe and resumed negotiations with the European Union on Ireland's border safeguards. The pound then fell further, which only meant more procrastination, more frustration for those in it, unfriendly uncertainty in the market, and a passive rise in the dollar index as the pound fell. In fact, the dollar did well on Monday, recovering all of its losses on Friday. Fawad Razaqzada, technical analyst at Jiasheng Group, told reporters.



Last week, the disappointing U.S. employment report showed that only 155,000 jobs were created in November, and wage growth was lower than expected by 0.3% to 0.2%, so the dollar fell for a time.



Exchange rate stability increase policy flexibility



China's economy will continue to face downward pressure next year. Fundamentally, the institutions do not think that the RMB has been strongly supported. However, the stabilization of the renminbi also helps to stabilize market sentiment.



It is noteworthy that the recent three-month volatility of the US dollar against the offshore RMB has risen from 6.Another advantage of the recent stability of the offshore renminbi is that it may provide greater flexibility for Chinese policymakers to support the economy.



Although institutions generally expect that the central bank will not cut the benchmark deposit and loan interest rate, it is generally expected that there will still be a substantial reduction next year in order to replace MLF (medium-term lending facilities) with higher cost and collateral requirements, and fill the basic currency gap caused by the decline in foreign exchange share. Nomura Securities recently raised its benchmark expectations for 2019 to 2Five percentage points, of which 100 basis points are expected to be lowered in the first quarter and 50 basis points in the other three quarters; Morgan Stanley's forecast is even bigger, and it is expected to be lowered by 100 basis points every quarter next year.



At the same time, for the RMB, another key is the change of the Federal Reserve's monetary policy. The Federal Reserve will hold a two-day FOMC (Federal Open Market Committee) interest rate meeting on December 19, with a 25 basis point increase expected. But the market obviously pays more attention to its forward-looking guidance for next year's interest rate hike path. Earlier, due to the US stock market earthquake and the US economic momentum peaking, it seems that the Federal Reserve itself also holds the attitude of raising interest rates & ldquo; taking a step-by-step view & rdquo.



Previously, the Federal Reserve said it would raise interest rates three times in 2019, but now it seems likely that the number of interest rate increases will be revised down. According to Eurodollar futures data, the market forecast that the meeting on the 19th will raise interest rates by 20 basis points, once in 2019, and even begin to cut interest rates in 2020.



There are two possibilities for a moderate change in the conference. First, the Fed's median valuation will drop from three times to two times, which means that the median is likely to fall in 2020. Secondly, whether the Fed statement retains the policy interest rate, lsquo, and further increases the expression of rsquo. If this statement is deleted, it may indicate that the Federal Reserve believes that it is close enough to neutrality and adopts a more data-dependent strategic path. Eric Robertsen, director of global macro strategy at Standard Chartered, told First Financial Journalist.



Institutions generally expect the US dollar to be overvalued by 10%-15%, and as US bond yields peak, if long positions are closed, it will play an important role in the recovery of emerging markets. The US dollar may show a pattern of high and low next year.