Two Way Fluctuation Of RMB Against Market Speculation Arbitrage

< p > there are various indications that the history of unilateral appreciation of RMB has ended.

By the end of March, the yuan had depreciated 2.7% against the US dollar in the year, and basically returned to the 1 quarter of 2013.

The daily fluctuation of RMB also increased significantly. In February 25th and March 17th, the single day RMB decrease was close to 0.5%. In March 24th, the single day RMB was less than a href= "//www.sjfzxm.com" > /a > 0.6%.

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The "P" and the phased devaluation have caused the speculators' short - term large - scale explosion in the short term. The market is more important to the weakening of the expectation of the RMB appreciation, because this will make a strong correction to the long-term deformity development of our country, and promote the expansion and structure of the foreign exchange market in the middle and long term.

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Before P > February 2014, the RMB appreciation expectations were relatively stable, and the decision making of export enterprises was very simple: if the foreign exchange income is in the current period, the foreign exchange settlement will be settled immediately. If there is foreign exchange income in the future, it will choose to make forward settlement in the future.

In spite of the relatively large devaluation of the RMB, for example, from May 2012 to July, the spot exchange rate of US dollar against the RMB approached 6.39 from 6.30, while the 1 year US dollar forward price jumped to 6.50 from around 6.33, but the 2012 spot exchange rate of RMB remained slightly appreciated by 1%, which further strengthened the thinking mode that the company benefited early, and exacerbated the US dollar sell-off.

Since the beginning of the year, the large fluctuation of RMB has made the settlement of foreign exchange no longer stable. The export enterprises have tended to be cautious in the timing of foreign exchange settlement, and directly reduced the pressure of US dollar sell-off in the territory.

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< p > forward sale and sale is a powerful tool for importing enterprises to lock in costs. However, in the environment of unilateral appreciation, the enterprises with future import demand are eager to sign contracts for forward selling and foreign exchange, and enterprises with current demand for foreign exchange are also doing everything possible to postpone the purchase of foreign exchange for the purpose of earning RMB appreciation. Under such circumstances, arbitrage oriented enterprises have become the main body of long-term contracts for sale and purchase.

For example, enterprises with offshore financing capabilities will settle the uncertainty of future repayment of loans, and sign long-term forward selling and selling contracts to lock in future repayment costs (i.e. arbitrage arbitrage).

When importing enterprises can not postpone the time of payment, they often pay in foreign currency with us dollar loans, and sign long-term forward selling and selling contracts to lock in the cost of future repayment.

As long as the US dollar's long-term rise and the sum of US dollar lending rate are less than the RMB deposit interest rate, the operation is profitable. At that time, the function of forward selling foreign exchange to help import companies hedging has disappeared and is totally reduced to a speculative tool to lock in arbitrage earnings.

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< p > > a href= "//www.sjfzxm.com/news/index_s.asp" > market < /a > speculation is understandable, because if an enterprise signs a forward sale and purchase contract at the same time after borrowing the US dollar to lock in the cost of debt repayment, then a large amount of forward us dollar buying will naturally push up the long term premium of the US dollar until it completely eliminates the interest rate difference between RMB deposits and US dollar loans, which will not be profitable at the moment and arbitrage will be terminated naturally.

But before February 2014, when a strong unilateral appreciation of the renminbi was expected, a large number of enterprises chose to keep the exchange rate exposure (i.e. no arbitrage arbitrage) in the US dollar financing. If the renminbi appreciates appreciating during the loan period, speculators gain a profit of RMB appreciation while obtaining the interest spread.

This risk-taking behavior exacerbates the imbalance between domestic forward settlement and forward purchase of foreign exchange, which is highlighted by the long-term surplus of forward selling and foreign exchange.

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In order to eliminate the risk of forward exchange rate, commercial banks (general market area) generally need to carry out a flat market in the spot market, which directly exacerbates the pressure of US dollar sell-off in the spot market, further strengthens the expectation of RMB appreciation, and then leads to stronger P no more arbitrage.

This vicious circle of self strengthening makes the pressure of RMB appreciation completely out of line with the actual international competitiveness of the foreign trade department.

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The breaking of the P expectation of unilateral appreciation will, on the one hand, cause the enthusiasm of the export enterprises to lower the enthusiasm of the long-term settlement. At the same time, it will return the demand of forward selling foreign exchange to the importing enterprises, and directly reduce the net dollar sell-off of the market. On the other hand, it will make it difficult for the speculative capital to carry out arbitrage arbitrage without delay, which is conducive to the change of the exchange rate of the forward exchange rate and the balance between domestic and foreign interest margins, and to form a spontaneous market speculation suppression mechanism.

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< p > because a href= "//www.sjfzxm.com/news/index_cj.asp" > RMB > /a > has a long history of unilateral appreciation, and China's balance of payments surplus pattern is expected to continue over a longer period of time. The current market has strong long-term appreciation expectations for RMB.

Therefore, if we want to effectively combat market speculation, it is far from enough to rely on a single round of devaluation. Only a large two-way fluctuation will become the norm, so that the RMB can reach the equilibrium price in the high-frequency fluctuation. Only in this way can enterprises and financial institutions abandon gambling against the future price, and then gradually fade away the speculative color of forward selling and foreign exchange, so that they can return to the original function of hedging.

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