To The Moon

The US Dollar Index's tepid rebound more or less made the market ignore the recent trend of RMB. After hitting the level of 6.7, RMB fluctuated and fell back, returning to the integer mark of 7 again. For foreign investors, the continuation of the exchange rate trend will affect the actual income.

It is not difficult to find from the following figure that the US dollar/RMB exchange rate and the US Dollar Index have maintained a high positive correlation, but in this round of market, the depreciation of RMB is greater than that of the US dollar as a whole (the US Dollar Index has not yet broken through the previous high level).

In other words, the market's judgment on the internal situation of RMB may be quietly changing. In macro monetary policy, the differences between China and the United States have always existed, and there is a lack of substantial changes in recent years. Therefore, the bigger concern is above the economic expectation or other problems that have not yet appeared, and the price is only reflected in advance.

The US Dollar Index, as an important parameter to judge the prospect of RMB, is currently in a state of testing the breakthrough in the early stage and stabilizing. However, the current situation of low volatility and sluggish trend means that even if there is a market, it will take time to digest.

This means that there will be no new breakthrough in RMB at least in the short term. In the early stage, the shoulder top position of 7.25-7.27 is expected to play an effective role in suppression, and trading opportunities can also be considered in this range.

In the longer term, the change of RMB depends on two variables. First, it is natural to look at the progress and changes of Sino-US monetary policy (spread). If one is obviously loose and the other is relatively tight, it will definitely lead to a sustained market. If the two directions converge, it is difficult to have a trend market. At present, unless the fundamentals suddenly change, it is more likely to remain relatively in the same direction.

Another variable lies in the very important "falsification" in the second half of the year: whether the United States will really enter recession VS there are signs of recovery in China and the United States. Recovery will obviously benefit the RMB and not the US dollar. Although the recession from the United States seems to be bad for the US dollar, don't forget that the US dollar is a natural safe haven. When the financial market and even the economy are in turmoil, the influx of safe-haven funds into US debt/US dollar is bound to further suppress risky assets such as RMB. It is a little difficult to judge the result now, but individuals prefer the risk-off model to appear in the second half of the year, because the productivity change has not been seen for a long time, and it is impossible to reverse the cycle essentially by the efforts of central bank alone.

Based on the above analysis, we expect that the RMB will remain weak and volatile in the short term, but the possibility of falling below the previous low is low. If there is a suitable price, we can also try to bargain-hunting. Subsequent fundamental changes will dominate the trend of exchange rate. When the risk appetite deteriorates, it is more likely that RMB will fall below the previous low. If the recovery is verified, the US dollar will be under pressure. Once the fundamentals or news are clearly defined, we must follow the trend and don't try to trade against the trend easily.

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