Source: Bloomberg

Author: George Lei, Carter Johnson

Although Beijing has taken measures to stabilize the RMB exchange rate, Wall Street believes that there is still a lot of room for decline in RMB.

After the exchange rate of the offshore RMB against the US dollar fell below 7.30 last week, it was only one step away from the historical low last year.The stronger intermediate price of the RMB is the largest record since it is recorded.

This seems to slow down the decline in the RMB, and at the same time, the US dollar also has a round of universal weakness, but strategists say that these appropriate measures are not enough to prevent the depreciation of the RMB -this is the economic weakness and relatively low income incomeThe trend caused by rate.China ’s interest rate cuts will only expand their yields with the United States. It has not introduced major measures that stimulate consumer expenditures and the spread of continuous spreading in the real estate industry to further weaken investors' confidence.

Mease Chase Foreign Exchange Co -Director Mera Chandan and others wrote in a research report on Friday that the fundamentals of the RMB further depreciated were still intact.They believe that the rise of the US dollar against the RMB will be lasting, but the recent incidents remind everyone that the official will regulate the one -sided behavior.

Monday, the financing cost of the offshore RMB market has increased in six years. The market speculation is that the official is increasing the cost of short RMB.The RMB against the US dollar was reported at 7.1992 yuan on Tuesday, which was stronger than the market forecasting average, and it was the largest since the average venture.

The problem is that China's interest rate is still much lower than the United States within each period.At present, the two -year US Treasury yield is about 290 basis points higher than that of Chinese government bonds at the same time. The last level was in mid -2006.

The offshore RMB did not start trading in 2010, but the transaction price of the RMB at that time was close to $ 1 against RMB 8.If other factors are not considered and the yield gap continues to exist, this will mean that the yuan will fall by about 9%.

Ju Wang, director of foreign exchange and interest rate strategy of Bank of Paris, France, said that the exchange rate has no red line with a rigid regulation.In the end, it depends on the poor yield between the United States and China, and the difference between the nominal income rate is almost increasing.

The Bank of China ’s second -quarter monetary policy implementation report released on Thursday also stated that it will also“ increase macro policy regulation ”and reiterate a loose policy position.The central bank also promised to resolutely prevent the risk of over -adjusting the RMB exchange rate.

On Tuesday, the exchange rate of offshore RMB against the US dollar was 7.2870, not far from the historical lows set in October 7.3749.Earlier this year, the exchange rate was approximately 6.70 as people expect the economy to stimulate the recovery of the second largest economy in the world.

Christopher Wong, a foreign exchange strategist for Overseas Chinese Bank, said that the market is closely paying close attention to whether the US dollar will increase against the RMB and test the 7.38-41 resistance area.

Wong said that if this happens, it may promote the market to try to test the higher 7.50 within a few weeks.

For NOMURA SINGAPORE LTD. Foreign Exchange Strategy Global Supervisor Craig Chan, the continuous gap between the daily intermediate price and market expectations of the RMB may begin to weaken the stable role of this reference exchange rate.Chan pointed out that if the gap is nearly 2%daily, the official may be forced to sell the US dollar.

Chan said that the US dollar may rise to 7.50 or even higher.He said that the biggest risk of betting on the weak RMB was Beijing's major economic stimulus plan.

Nevertheless, when China fights against deflation (which is in sharp comparison with many G-10 economies), the depreciation of the RMB has brought some benefits to China.

Geoffrey Yu, a senior strategist at Meilong Bank of New York, said in an interview with Bloomberg TV last week that China now needs to reduce the actual interest rate.That's why they allow the RMB depreciation, so they can introduce some inflation.