On the evening of September 15, the offshore RMB exchange rate against the US dollar fell below the “7” mark. After more than two years, the RMB exchange rate against the US dollar has once again entered the “7” era. On September 16, the RMB exchange rate against the U.S. dollar also fell below the “7” integer mark in the onshore market, reaching as low as 7.0188, continuing to hit a new low in more than two years.
No need to panic when “breaking 7”
Many industry experts pointed out that there is no need to pay too much attention to whether the RMB exchange rate “breaks 7” or not. “Breaking 7” does not mean that the RMB will depreciate significantly. At present, it is normal for the RMB exchange rate to fluctuate in both directions, with ups and downs being normal. Some institutions believe that moderate and orderly depreciation of the RMB exchange rate will help boost exports and play the role of the exchange rate as an automatic stabilizer in regulating the macroeconomy and the balance of payments.
“7” has always been regarded as an important psychological threshold, and the RMB exchange rate has broken “7” many times. For example, in August 2019 and May 2020, the RMB exchange rate broke “7” due to trade friction and the epidemic respectively.
In fact, after “breaking 7” in August 2019, the RMB exchange rate has opened up flexible space for upwards and downwards. Now, both the government and the market have greatly increased their tolerance and adaptability to two-way fluctuations and wide fluctuations in exchange rates. This can be confirmed by recent market performance: the decline in the RMB exchange rate since August 15 has not been accompanied by market panic.
At present, my country’s foreign exchange settlement and sales market is operating smoothly. Since August, banks’ foreign exchange settlement and sales and foreign-related receipts and payments have shown a double surplus. In August, banks’ foreign exchange settlement and sales had a surplus of 25 billion US dollars. Foreign-related receipts and payments by enterprises, individuals and other non-bank sectors The balance of payments was US$11.3 billion, both higher than the monthly average this year. Overseas investors generally bought Chinese securities on a net basis, and foreign exchange market participants became more rational in their participation. They maintained the trading model of “settling foreign exchange on highs” and exchange rate expectations were stable.
In the future, as the domestic economy stabilizes and the U.S. dollar index corrects, the RMB exchange rate will rise back to the “6” range.
It is difficult for textile companies to benefit
Some experts believe that a moderate depreciation of the RMB exchange rate will be beneficial to exports and will enhance the competitiveness of China’s export products to a certain extent. However, for the RMB exchange rate to “break 7”, some market views are worried that it will have adverse effects in some aspects. For example, depreciation expectations may intensify capital outflows; exchange rate depreciation will lead to an increase in the cost of raw material imports, exacerbating imported inflationary pressure and squeezing profits of downstream industries; and increasing the pressure to repay foreign debt principal and interest. ; Forming constraints on domestic monetary policy, limiting the policy space for stabilizing growth, etc.
When it was approaching breaking “7”, according to media surveys, textile export companies did not benefit from the depreciation of the exchange rate. Due to the damage caused by overseas epidemics to overseas industrial chains, although China’s textile exports have increased this year, more of them are exported finished products, while the number of directly exported fabrics has decreased. Therefore, textile export companies have not benefited from the exchange rate dividend. On the other hand, due to the depreciation of the exchange rate, the price of imported raw materials will increase. Although most of the polyester yarns are currently produced in China, the upstream raw materials, whether they are crude oil at the forefront or PX necessary for the production of PTA, still need to be imported in large quantities. These raw materials have depreciated due to the exchange rate. And prices rise. Therefore, as the price of raw materials increases, the price of polyester yarn also rises, and the costs of downstream textile enterprises also increase.
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