The US dollar exchange rate has risen to 6.8, is there a chance of breaking 7?

On May 13 , the onshore RMB spot exchange rate against the US dollar fell below 6.8 , reaching a low of 6.8110 , while the offshore RMB spot exchange rate against the US dollar had fallen to the 6.8 range on the previous trading day , with a low of 6.8375 on May 13. The US dollar exchange rate has been rising all the way and has already broken through the 6.8 mark !

The US dollar exchange rate breaks through the 6.8 mark , and cross-border sellers may "win without doing anything"

Since late April, the onshore and offshore RMB exchange rates against the US dollar have continued to fall, breaking through multiple barriers in succession. On April 22, the onshore and offshore RMB spot exchange rates against the US dollar fell below the 6.5 mark . Subsequently, the US dollar exchange rate continued to rise, breaking through the 6.8 mark on May 13 , one step closer to returning to the "7" era!

Since the beginning of this year, cross-border e-commerce export sellers have been affected by the epidemic, war, new platform regulations and other factors, and their product sales and profits have not been optimistic. The recent sharp rise in the US dollar exchange rate has had a direct positive impact on sellers' profits , especially those that mainly target the US market or settle in US dollars.

"The US dollar exchange rate has risen recently, and the profits have increased a lot!"

"The US dollar exchange rate has been soaring and is about to break 7 again!"

"I'm saving up my US dollars and will exchange them in July or August ! "

At the same time, compared with the US dollar exchange rate of around 6.3 in March, at the current exchange rate of 6.8 , sellers can get nearly 50,000 yuan more for every 100,000 US dollars they withdraw , which is a solid net profit.

Exchange rate fluctuations not only affect the profits of small and medium-sized sellers, but also have a greater impact on larger sellers. Taking Oujiaju as an example, the exchange loss in 2021 was as high as 71.7521 million yuan, accounting for 24.03 % of the total profit . In addition, Chuangyuan shares also suffered exchange losses of nearly 10 million yuan in 2021 , accounting for 174.61 % of the current profit .

Recently, Anker Innovations, a listed company, also responded on its investor relations platform to whether the depreciation of the RMB has a positive impact on the company's performance. It said that about 97 % of Anker Innovations' operating income in 2021 was in foreign currency, and fluctuations in the RMB exchange rate would have a certain impact on the company's performance. In the future, the company will continue to strengthen its analysis and research on exchange rate changes, actively manage foreign exchange risks, adhere to the principle of "risk neutrality", select appropriate currency quotations, enhance product pricing capabilities, balance foreign currency receipts and payments, and comprehensively adopt foreign exchange hedging and other methods to reduce some of the possible impacts of exchange rate fluctuations.

In addition, Jianlin Home Furnishing, which generates 70% of its revenue from exports, said that the appreciation of the US dollar exchange rate will have a certain positive impact on the company's export revenue settlement .

From the perspective of foreign exchange settlement, the decline in the RMB exchange rate can indeed increase profits for sellers, but it will also raise the prices of commodities and shipping costs, so sellers need to look at this comprehensively.

Multiple factors lead to the depreciation of RMB exchange rate

Regarding this round of rapid depreciation of the RMB exchange rate, CICC believes that there are three main reasons: the rapid strengthening of the US dollar index; the divergence of currency rhythms and the interest rate gap between China and the United States; the Chinese economy was temporarily impacted by the epidemic and export expectations weakened.

It is understood that after the Federal Reserve decided to raise interest rates in March, the US dollar index rose rapidly. Although the US inflation level continues to be high, the US dollar index remains strong due to the Federal Reserve's interest rate hike plan and market expectations of interest rate hikes.

With the rise of the US dollar index, the depreciation of the RMB exchange rate is not that large compared with other currencies. For example, in February, the exchange rate of the Japanese yen to the US dollar was around 110, while in May, the exchange rate of the Japanese yen had fallen to around 130, a depreciation of more than 10%, far exceeding that of the RMB.

Wang Tao, chief economist of UBS Securities China, said that with the Fed raising interest rates and rising U.S. Treasury yields, the interest rate gap between China and the United States has gradually narrowed or even inverted. Previously, strong demand for export settlement supported the appreciation of the RMB exchange rate, but under the influence of the expectation of dollar appreciation, the demand for exporters' settlement has declined, which has also led to the depreciation of the RMB exchange rate.

Shanghai Securities believes that the impact of the epidemic on China's economy has weakened market expectations, which is an important reason for the recent sharp decline in the RMB exchange rate against the US dollar. The rapid spread of this round of domestic epidemics, with wide coverage, long duration and slow recovery, has led to a decline in economic expectations, increased uncertainty, and asset selection for "risk aversion" has caused the RMB to weaken rapidly. Customs data showed that due to the impact of the epidemic, China's exports grew by 1.9% year-on-year in April, compared with 32.3% in the same period last year.

Regarding the sharp drop in the RMB exchange rate in the short term, the relevant person in charge of the China Banking and Insurance Regulatory Commission stated at the China Banking and Insurance Regulatory Commission's briefing on May 13 that the RMB exchange rate fluctuations are still within a reasonable range, the overall performance is stable, and the depreciation will not continue unilaterally for a long time. The person in charge said, "The short-term fluctuations of the RMB exchange rate are mainly affected by market sentiment, and the long-term trend is mainly determined by fundamentals."

Relevant domestic regulatory authorities have also stated that they will further strengthen timely regulation and do not rule out the possibility of using policy measures to ease the pressure of RMB depreciation in the future.

In fact, as early as April 25, the People's Bank of China announced that it would reduce the foreign exchange deposit reserve ratio of financial institutions from 9% to 8% from May 15, in order to increase the supply of foreign exchange loans of financial institutions, enhance the ability of financial institutions to use foreign exchange funds, and stabilize the RMB exchange rate.

Under the influence of multiple factors, what will be the final trend of the RMB?

Will the RMB fall back to the “7 era”?

The depreciation of the RMB exchange rate this time was greatly affected by the US dollar interest rate hike. However, the market expects that the Fed's pace of interest rate hikes will not stop in the short term.

After raising the interest rate by 25 basis points in March, the Federal Reserve announced another 50 basis point rate hike on May 4, the highest increase in more than 20 years. Federal Reserve Chairman Jerome Powell said, "Inflation has caused a lot of difficulties, and we are taking quick action to curb inflation." In addition, Powell also revealed that he will actively consider raising the interest rate by another 50 basis points at the June and July meetings.

It is understood that the year-on-year growth rate of US CPI in April was 8.3%, which was slightly lower than 8.5% in March, but the decline was less than expected. Some analysts believe that this will make the Fed's future interest rate hike policy more uncertain. BNP Paribas believes that the Fed will raise interest rates by 50 basis points for four consecutive times.

In this context, how will the RMB exchange rate trend in the future? Relevant institutions have given different predictions.

UBS predicts that the RMB exchange rate may fall further, even reaching "7" in the middle of the year , but may return to 6.9 by the end of the year. However, as China's economy recovers, it may recover slightly to 6.7 by the end of 2023. Standard Chartered Bank's latest forecast for the USD/RMB exchange rate is: 6.70 in the second quarter, 6.65 in the third quarter, and 6.60 at the end of the year. Standard Chartered believes that the depreciation of the RMB can alleviate China's economic pressure to a certain extent and improve the competitiveness of the export economy. Shanghai Securities believes that in the medium term, the RMB exchange rate will rebound to the equilibrium zone of 6.3-6.4.

In the past year, the RMB exchange rate has experienced a round of ups and downs. Therefore, in this uncertain market environment, no matter how the RMB will trend in the future, sellers must manage the risk of exchange rate fluctuations, pay attention to relevant developments, and be prepared to deal with two-way fluctuations in the exchange rate.

US Dollar Exchange Rate

Break 7

Cross-border e-commerce