RMB Exchange Rate: Is The Risk Of Depreciation Controllable?

As the US dollar index continued to rise and domestic economic figures were not satisfactory at the end of last year, the RMB exchange rate weakened in the new year.

On the first trading day of 2015, the central parity of RMB against the US dollar was quoted at 6.1248 (i.e. 1 yuan to 6.1248 yuan), which was 58 basis points lower than the previous trading day, and the spot exchange rate hit the largest one-day drop in half a month.

Is the risk of depreciation controllable?

In 2014, the RMB exchange rate appeared the first annual depreciation since 2010. This year's opening up basically extended the pattern of weakening at the end of last year.

Xie Dongming, an economist with overseas Chinese Bank of Singapore, believes that the risk of RMB depreciation will still exist in the short term, but the space will not be too large and will remain in the controllable range.

The exchange rate of RMB against the US dollar should be between us $1 and US $6.1 to 6.3 yuan.

There may be a slight rebound in the second half of next year, but it is unlikely that there will be a significant increase in the past few years.

Dominique Lombardi, director of global economic governance at the center for International Governance Innovation of the famous think-tank in Canada, said: Overall, in 2015, the RMB is facing downward pressure. However, with the progress of China's economic modernization and the promotion of RMB internationalization, the RMB will show a trend of steady appreciation in the medium term.

Merrill Lynch believes that the renminbi will remain stable against the US dollar in early 2015 as a result of strong trade surpluses. However, in the second half of next year, as the US increases interest rates and the US dollar appreciates, the renminbi will face a slight depreciation.

The US dollar exchange rate is expected to be 1 US dollars in the four quarter of 2015 to 6.05, 6.08, 6.12 and 6.20 yuan respectively.

Observers believe that the future US dollar trend, China's economic growth and the balance of payments situation will be a number of internal and external factors that affect the RMB exchange rate fluctuation.

Deutsche Bank recently released the world's major currency exchange rate forecast report, expected in 2015, the RMB to the U.S. dollar exchange rate will show a downward trend, the relative depreciation of the renminbi is mainly due to the dollar price will be greatly supported.

Xie Dongming believes that the dollar will further strengthen in the first half of 2015, which will create some pressure on the RMB.

From the basic point of view, China's current trade surplus is still relatively large, the overall export will remain stable this year, and the surplus will not be substantially reduced, which will continue to support the RMB exchange rate.

Xia Huasheng, Professor of finance at the Vargas foundation of Brazil, said that as the US economy recovers, especially the US interest rate hike in the future, the US dollar will further go up, so many currencies, including China's RMB and Brazil Real, will be devalued in varying degrees.

The depreciation of the renminbi will help to increase the export competitiveness of Chinese products and slow down the economic downturn in China.

In Bardi's view, the RMB exchange rate will show a two-way fluctuation in 2015.

First, because the Fed's monetary policy stance of raising interest rates and the steady recovery of the US economy, the US dollar exchange rate is strengthening.

Secondly, from the perspective of Europe, the European Central Bank is expected to launch a sovereign bond purchase plan. If this quantitative easing program is put into operation, it will weaken the exchange rate of other currencies including RMB.

Once again, China's economic growth has slowed down, which will also be a driving force for the downward trend of the RMB exchange rate in 2015.

What's the pros and cons of RMB devaluation for outbound tourism and overseas study? Xie pointed out that the depreciation of the renminbi is now directed against the US dollar. However, in terms of Singapore dollar, the total value of the renminbi still appreciates, and the 2015 trend will still be maintained.

So from this perspective, it should not have much impact.

Xia Huasheng believes that although the renminbi has depreciated, it still has an appreciation relative to Real, so it has no bad influence on China's students in Brazil, but reduces the cost of living for foreign students.

Lombardi pointed out that if the RMB entered a short-term depreciation channel in 2015, overseas Chinese students would face the pressure of RMB depreciation.

But at the same time, this will encourage more international tourists to travel to China.

Yan Xiaozhe, executive director of the Iowa Chinese Association, said that the depreciation of the RMB has an impact on studying in the US. Now the overseas students' families are taking some measures to counteract the effect of RMB devaluation, for example, students' parents buy real estate including houses, land and companies, and stocks in the United States, so as to preserve their assets in the country.

Is it still a good choice to hold Renminbi? Analysts generally believe that the renminbi is relatively strong compared with other major currencies other than the US dollar, and is still worth holding.

Xie Dongming believes that the return of the renminbi is still relatively high, and that compared with other currencies such as the euro and yen, the value of the currency is relatively stable and is still worth holding.

Lombardi believes that investors should pay attention to their volatility in the short term.

In the long run, the renminbi is definitely worth buying.

Deutsche Bank said in its report that it is still optimistic about the yuan. After the initial speculative liquidity weakened the value of the renminbi, the focus of attention now shifted to supporting economic growth.

China is expected to use monetary policy as a means to enhance liquidity, attract capital inflows or at least curb capital outflows.

Deutsche Bank pointed out that the current market sentiment towards the renminbi is generally more optimistic, mainly for two reasons: first, the strong rebound trend of China's trade surplus will continue; two, the market expects the Chinese government to take more measures to stimulate domestic demand.

Therefore, the current choice of long-term bullish RMB.