Will the RMB Exchange Rate Break 7 in This Year?

At present, the RMB exchange rate is still under the pressure of depreciation. The central bank's attitude is the key to judging the direction. There have been two major changes in the central bank's behaviour recently. First, it has made clear that it will withdraw from normal foreign exchange intervention. Second, it will release signals of exchange rate stability by raising the reserve for forward foreign exchange sales.

This shows that the central bank has been committed to the transition to a floating exchange rate, but also worried about the market devaluation direction too fast. The Sino-US trade war played an important role in the middle. We believe that the central bank wants the foreign exchange market to adjust spontaneously to absorb the impact of the trade war, and has not deliberately guided the foreign exchange market to depreciate against the United States tariff increases.

We believe that if the current account deficit persists, the RMB exchange rate will encounter pressure to break through the 7 point. The central bank will allow the exchange rate to hover for a period of time between 6.9 and 7 according to the domestic and foreign situation at that time, and let the RMB exchange rate break through the 7 key point when the domestic situation is relatively relaxed.

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