Recently, these days, we will witness a historic moment together.
First, the renminbi may break through 7.0 at any time;
Second, the U.S. debt has exceeded the limit, and the status of the U.S. dollar is being further weakened.
01, Renminbi breaking 7 is imminent
On October 25, the renminbi against the U.S. dollar once fell to the lowest record of 7.37, but then the second trading day saw a significant rebound.
Entering November, although the exchange rate has fluctuated to some extent, the overall trend has been continuously rising, with a total increase of 2,900 points in November, also becoming the first monthly increase since the depreciation began in March.
Although December has only two trading days, the renminbi exchange rate has already created a peak rise after depreciation, very close to the 7.0 threshold.
02, Review
Looking back at the monthly data this year, the offshore renminbi exchange rate slightly fell in January, but rebounded in February. Before that, the U.S. dollar index had already started to rise, but the overall trend of the renminbi against the U.S. dollar was actually rising.
However, starting from March, the Federal Reserve officially began to raise interest rates. Therefore, in March, the renminbi fell by 0.66%, officially starting this wave of decline.Looking at the monthly decline, the fastest drop occurred in April, with a decrease of 4.1%, followed by several months of relatively small declines.
However, starting from August, the decline exceeded 2% for three consecutive months, reaching 2.8%, 3.39%, and 2.74%, respectively. It was after this wave of decline that the Chinese yuan's exchange rate touched its lowest point.
But as things reach an extreme, they must reverse, or in other words, the US dollar ultimately lacks a solid economic foundation to support its rise, making it easy to fall after climbing.
Therefore, after entering November, the Chinese yuan rebounded significantly, and the US Dollar Index also experienced a certain degree of decline. Moreover, the speed of the yuan's rebound was much greater than the depreciation of the US dollar, or compared with other non-US currencies, the appreciation rate of the yuan was greater than that of most non-US currencies.
03, US Debt Default
Currently, many of the US's economic data are not very optimistic, and the possibility of entering a recession in the future is increasing.
The latest PCE price index, which was just released, is still growing compared to last month, but fortunately, the year-over-year growth rate has slightly declined.
This may indicate that the Federal Reserve's inflation has been somewhat controlled, but compared to the Federal Reserve's 2% inflation target, it is still very far away.
In addition, the total amount of US government debt has officially exceeded $31.4 trillion, surpassing the debt limit set by the US Congress.
At the beginning of this year, US national debt just broke through $30 trillion, and by October, it had already exceeded $31 trillion. Before Congress had time to approve a higher total debt amount, it has now exceeded $31.4 trillion.In fact, the principle is the same for a country as it is for a business or an individual: when debt increases, credit decreases. As the total amount of U.S. debt continues to rise, it will inevitably weaken the U.S. dollar.
04, Economic Upturn
Under these circumstances, the U.S. dollar, which was propped up solely by rising interest rates, began to turn downward. Therefore, it is just a matter of time before the Chinese yuan rises again above 7.0.
Of course, as we mentioned when the yuan exchange rate fell below 7.0, 7.0 is just an integer threshold and does not have much significance in itself. Whether it breaks below or above 7.0, what is more important is that we still need to look at the economic data.
As early as the exchange rate reform in 2015, the exchange rate of the Chinese yuan against the U.S. dollar had once broken below 7.0, but there was no significant devaluation of the exchange rate afterward. In fact, shortly after breaking below 7.0, there was a rebound, returning to the sixes.
So, when it broke below 7.0 this time, we also predicted that this is not a long-term exchange rate range. Now it seems that it will soon return to the sixes range.
What's more important is that, unlike some emerging markets, China has strong economic data as a backing. Therefore, although there have been fluctuations in the exchange rate, there has been no significant capital outflow.
As long as there is no capital outflow, a decrease in the exchange rate is actually beneficial to foreign trade exports.
Perhaps in the coming period, what everyone will witness is not only the continuous rise of the Chinese yuan but also the continuous decline of the international status of the U.S. dollar.