Nowadays, there is almost no bearish voice in the foreign exchange market, and most hedge funds and asset management institutions are discussing whether the RMB / USD exchange rate can break through the 6.4 round mark at the end of the year. Marc Chandler, head of global foreign exchange strategy at Brown Brothers Harriman, said. Behind this, first, the U.S. epidemic is back, making the U.S. economy very likely to return to recession in the first quarter of next year, causing global investment institutions to turn to RMB assets for hedging; second, the yield of Chinas treasury bonds and the interest rate gap between China and the United States have both increased, which has created excellent opportunities for them to increase positions in RMB assets and buy up RMB.
It is worth noting that with the RMB exchange rate reaching new highs, Chinas banking industry itself has a double surplus with the settlement and sales of foreign exchange on behalf of customers.
According to the latest statistics released by the State Administration of foreign exchange on November 20, the surplus of foreign exchange settlement and sales of domestic banks in October reached 13 billion US dollars, and the surplus of foreign payment and receipt of foreign agents reached 25.1 billion US dollars.
A Wall Street hedge fund manager told reporters that the double surplus data makes hedge funds realize that at present, market participants such as enterprises, individuals and financial institutions are quite optimistic about the continuous rise of RMB, which makes them more confident of buying RMB up.
Wang Chunying, deputy director of the State Administration of foreign exchange and a spokesman for the State Administration of foreign exchange, said that at present, the market entities present a rational trading mode of settlement of foreign exchange during the period of exchange rate decline and purchase of foreign exchange during the period of exchange rate rise, and the exchange rate is expected to remain stable.
A number of domestic banks told reporters that since last week, the number of enterprises that speculated on the rapid rise of RMB arbitrage has continued to decrease - more and more foreign trade enterprises either take advantage of the rise of RMB exchange rate to break through 6.6, increase the intensity of purchasing foreign exchange in advance to lock in the exchange cost, or hedge the potential exchange rate fluctuation risk through long-term swap transactions, so as to avoid a large number of working capital in the foreign exchange marketu201c Run naked.
This shows that when the RMB exchange rate continues to rise to record highs, the self counter cyclical adjustment of market entities is also strengthened, which makes the RMB exchange rate tend to be stable and two-way fluctuation in a reasonable range. A foreign exchange trader of a large state-owned bank pointed out to reporters.
As of 20:00 on November 23, the exchange rate of RMB against the US dollar in the onshore market hit 6.5642. -Photo by Gan Jun
The widening interest rate gap between China and the United States promotes the appreciation of RMB
Reporters have learned from many sources that the sharp rise in the RMB exchange rate since last week once hit a new high of 6.5406 in the past 29 months. Firstly, the signing of the regional comprehensive economic partnership agreement (RCEP) accelerated the process of RMB internationalization, and secondly, benefited from the widening interest rate gap between China and the United States, reaching a historical high.
To be specific, some corporate credit bonds have suffered a wave of default, which has dragged down the market investment preference and pushed up the yields of treasury bonds and policy bank financial bonds last week. Especially on November 19, 2020, the yield of 10-year Treasury bonds rose to 3.34%, breaking through the key price of 3.3%; the yield of 10-year CDB financial bonds rose to 3.78%.
On the contrary, many overseas capitals take the opportunity to increase their positions in Chinas treasury bonds, and at the same time, hedge funds can see a new opportunity to gain profits by buying up the RMB.
After all, the US Treasury bond yield fell to around 0.85% last week, leading to the interest rate spread between China and the United States widened again to a historical high of 249 basis points, attracting a number of large global asset management institutions to quickly increase their positions in RMB treasury bonds and win more considerable risk-free Sino US interest rate spread yield.
A chief representative of the Asia Pacific region of a large European asset management institution told reporters that during the period when the interest rate gap between China and the United States widened again last week and reached 249 basis points, they increased their positions by more than 25 million yuan in Chinas treasury bonds and China Development Bank financial bonds.
However, their strength in the industry is not high. Because he heard that an international asset management agency has increased the position of more than 60 million yuan of Chinese treasury bonds at one go.
Our move to increase positions has given a new interpretation to many overseas hedge funds. He told reporters. Due to the resurgence of the epidemic in Europe and the United States, central banks in Europe and the United States may increase monetary easing, which further increases the scale of negative interest rate bonds in Europe and the United States. Therefore, hedge funds believe that these large asset management institutions are bound to take advantage of the widening interest rate gap between China and the United States and continue to increase their positions in RMB treasury bonds in order to seek a more stable and observable positive return. As a result, they rush ahead of asset management institutions and buy up RMB in large scale.
A foreign exchange trader of a Hong Kong Bank said that since last week, some hedge funds and overseas asset management products have been more aggressive in buying RMB. Some of them have already bought RMB call options that mature at the end of December and exercise prices between 6.35 and 6.4. In addition, many overseas asset management products are also buying RMB treasury bonds which will mature and be executed at the end of March next year RMB swap positions with a line price of around 6.3.
He believes that this is closely related to the widespread expectation that the US Federal Reserve may soon issue new QE measures to increase the purchasing power of medium and long-term US Treasury bonds, because this has led to a fall in the yield of 10-year US Treasury bonds, as well as the continued widening of Sino US interest rate gap, which makes these hedge funds and asset management products more radical.
Jack McIntyre, head of Brandywine global investment management, believes that at present, Wall Street generally believes that the Federal Reserve will adjust the direction of QE bond purchase of US $80 billion per month at the latest monetary policy meeting, that is, more QE funds will be used to buy long-term US Treasury bonds to boost the economy.
Marc Chandler told reporters that the rise and fall of the RMB exchange rate has a strong positive correlation with the interest rate spread between China and the United States. As long as the interest rate gap between China and the United States is expected to widen, the enthusiasm of hedge funds to buy up the RMB will rise.
Although the RMB has risen by more than 8% against the US dollar since May, if the US dollar continues to depreciate by 4% in the coming year, most hedge funds still believe that there is more than 5% room for the RMB to rise. He said.
It is worth noting that with the continuous rise of RMB exchange rate, more and more domestic and foreign trade enterprises have started counter cyclical adjustment.
At the end of last week, when the onshore RMB exchange rate hit a 29 month high of 6.54, the top management of the enterprise asked us to quickly increase the foreign exchange purchase efforts - Convert 80% of the external payment amount in the next six months into foreign currency as soon as possible. A foreign trade enterprise financial director told reporters. This was unthinkable in the past. When the RMB exchange rate rose above 6.7 in the past two months, they suggested that the top management of enterprises should increase their efforts to purchase foreign exchange, and each time they received the response of wait, the RMB will rise again.
In her view, the reason behind this is that the top management of the enterprise thinks that the current exchange rate can save the enterprise more than 6% of the exchange cost, which is far more than the profit of the foreign exchange hedging strategy originally envisaged. Therefore, the mentality of pay as you see it dominates the enterprises foreign exchange purchasing strategy.
A head of hedging business department of a joint-stock bank also told reporters that the number of foreign trade enterprises that increased their efforts to purchase foreign exchange in the first three weeks of November increased significantly. Many foreign trade enterprises that chose to wait and see (bet on the rise of the RMB exchange rate for arbitrage) took the initiative to contact the banks to negotiate to increase their foreign exchange purchase efforts when the RMB exchange rate hit a new 29 month high last week.
Through the investigation, we find that the reasons why these foreign trade enterprises choose to increase their foreign exchange purchasing efforts are: firstly, many entrepreneurs believe that the current RMB exchange rate has fully reflected the market expectation that Sino US relations will tend to ease, so they have to take advantage of the rising exchange rate. Secondly, in the past six months, the peoples currency has continued to rise by more than 8%, and many enterprises also believe that the exchange earnings in the process of foreign exchange purchase are quite richu201c When you see something good, youll stop.
In his view, with the increase of enterprises independent counter cyclical adjustment, the future bank settlement and sales of foreign exchange and foreign exchange settlement and sales on behalf of customers may not maintain a double surplus. The reason is that foreign trade enterprises purchase of foreign exchange will reduce the surplus of foreign exchange settlement and sales by banks on behalf of customers.
However, the change of the double surplus situation may not have a negative impact on the sustained and steady rise of the RMB exchange rate. This joint-stock bank hedge business head said. In recent years, Chinas balance of payments has formed a new balance, that is, the cross-border capital inflow and outflow of enterprises, individuals and overseas investment institutions has shown an independent balance of import and export, with both coming and going, thus maintaining a stable balance of supply and demand in the foreign exchange market, and also driving the expected stability of the market exchange rate.
Marc Chandler believes that since the outbreak of the epidemic, the influence of exchange rate operation of enterprises and individuals on the fluctuation of RMB exchange rate tends to decline, but the pricing discourse power of financial institutions continues to increase. In the past six months, it is the sustained bullish of global financial institutions that has kept the RMB exchange rate on the track of repeatedly reaching new highs.