On April 29, 2016, the CFETS RMB exchange rate index closed at 97.12, depreciating 1.04 percent from the end of March; the RMB exchange rate indices based on the BIS basket and the SDR basket closed at 98.06 and 97.04 respectively, losing 1.03 percent and 0.58 percent from the end of March. Meanwhile, the volatility of RMB exchange rate index further decreased. The average daily fluctuation of the CFETS RMB exchange rate index, the RMB exchange rate index based on the BIS basket and the RMB exchange rate index based on the SDR basket were 0.10%, 0.11% and 0.07% respectively, all of which were lower than those in March. Generally speaking, all three RMB exchange rate indices showed overall stable trends with moderate depreciation.
Looking from the trend in April, the RMB central parity appreciated slightly, while the close rate and the RMB exchange rate index experienced moderate depreciation. The mixed movement was related to the movements of a basket of currencies and also reflected the dynamics of market supply and demand. On one hand, the market expectation of Federal Reserve’s rate hike further weakened since April, and the Federal fund interest rate futures showed that the probability of the rate hike in June had decreased to around 10 percent. The DXY index dropped further, and fell by 1.6% in April alone. Under the circumstances that USD depreciated against other major currencies, RMB central parity appreciated accordingly to maintain the overall stability of the RMB exchange rate against a basket of currencies. On the other hand, looking from the change of market supply and demand, the inclination of corporations’ oversea expansion further heated up since the beginning of this year. The first quarter overseas direct investment amounted to 40.09 billion USD, which was a 55.4% YoY increase. The overseas direct investment usually led to the conversion of RMB to USD by corporations, and contributed to the market’s USD demand. Supply is still not adequate to demand in onshore FX market, and the close rate of RMB against USD mostly went in the depreciating direction against the central parity of the same day in since the beginning of the year. The RMB nominal effective exchange rate continued to display a moderately depreciating tendency due to the change of market supply and demand. Comprehensively, if the price factor was taken into consideration, RMB exchange rate against a basket of currencies still remained basically stable. (Source: PBC Website)
