The U.S. foreign exchange index jumped nearly 200 points to 6.6987 against US dollar on Monday, reaching a low in the recent five-and-a-half years. The US exchange fell below 6.7 at the early stage of the night, which was a new low since October 2010. The middle price of CNY/USD parity also fell 156 points, reaching a new low in the past 6 years to 6.6961. By 11:00 PM, the onshore and offshore rates were 6.7045 and 6.716 respectively,every hundred Hong Kong dollars to RMB was 86.45 and 86.6 respectively. According to some analysis, the regulatory department wants to keep closing prices stable, and more importantly, to provide market with liquidity while waiting for the external environment to get better. In the medium term, there is no room for continuous depreciation of RMB. With the inclusion of people's currency in SDR, foreign exchange and bond market opening policy pushing forward, the demand for RMB from foreign long-term investors will increase.

The people's bank of China (pboc) cut middle price of CNY/USD by 156 points or 0.23% on Monday, the lowest point since October 2010, which was 6.6961 yuan. Onshore CNY/USD followed the middle price, with an opening price slightly lower in the day and fell about 70 points in an hour, after which it oscillated slightly near 6.69 yuan, closed at 6.6987 yuan at 4:30 PM, compared with the previous trading day, closing price at day and at night fell 183 points and 97 points, or 0.27% and 0.15% respectively, reaching a new closing low for the five and a half years. The CNH fell more than 100 points to 6.7319 per U.S. dollar within an hour after the pboc's announcement, and went downward after a sharp rise.

Morgan Stanley expects CNY/USD to be 6.82 by the end of this year

Traders said that recent risk events were frequent. With the US exchange index rose sharply last week and the middle price still be made by the pricing mechanism on Monday, the pressure on the spot market was rising. Although there were big signs of keeping stable during the days, we can expect that regulators will not adhering to a particular point, but to provide the market with liquidity and stay moderate stable, and to keep control of the depreciation rate while waiting for the external environment to get better. In the mid-term, we expect that the downward space is tight.

When futures started trading at night, the onshore RMB against U.S. dollar began to fluctuate severely, going downward and breaking through 6.70 yuan around 5:30pm, and reaching 6.7021 low; the offshore yuan was in line with the onshore yuan. By 11:00 p.m., the onshore and offshore yuan traded at 6.7045 and 6.716 respectively. A Chinese bank trader said, the demand for dollar was strong. Usually, if the U.S. index rises a little, the midpoint of the next trading day would be above 6.7.

The recent devaluation of the renminbi, as the result of the Brexit vote, has led some overseas institutions to continue to lower the yuan's exchange rate against U.S. dollar to 7 or less. According to foreign media, Morgan Stanley's latest forecast is 6.82 yuan to U.S. dollar at the end of the year and 7.26 yuan at the end of 2017.

Policy counts

Whether the RMB exchange rate will be able to survive in the second half year, Tian Lihui, professor of Financial Development Institute at Nankai university, indicated that the exchange rate has much to do with judgements on the future economy and investors’ confidence. From this point of view, as long as the Chinese economy keeps stable, the exchange rate will not depreciate significantly. Furthermore, whether it will break 7 or not largely depends on the adjustments to the economy made by macro-policy makers and monetary-policy executors.

As RMB officially joined the SDR basket, as well as the opening up of foreign exchange and bond markets, some analysts said that those would lead to a rising demand for RMB among long-term investors.

Real exchange rate hit a new low in the past 20 months

According to the latest report published by the bank for international settlements (BIS) on Monday, the real and nominal exchange rate index of RMB dropped 1.64% and 1.31% to 123.14 and 123.14 respectively, both are new lows in the past 20 months, and expand drops of last month, which was 0.86% and 0.19% respectively.

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http://paper.takungpao.com/resfile/PDF/20160719/PDF/a10_screen.pdf

http://finance.takungpao.com/dujia/2016-07/3347676.html