The RMB Exchange Rate Against The US Dollar Broke 7, And Textile And Garment Enterprises Laughed.

In August 5th, the offshore and onshore RMB against the US dollar fell to 7 passes. The news reached the top of micro-blog's hot search list and caused a stir in the foreign trade circle.

The RMB exchange rate fluctuations directly affect the profits of foreign trade enterprises. The RMB breaking 7 means that export oriented enterprises will get a breathing space under the severe foreign trade situation such as Sino US trade war, among which textile, clothing, toys and other price sensitive enterprises may become the biggest beneficiaries.

Swinging exchange rate fluctuations

Let's review the swing of the past exchange rate:

In July 2017 -9, the yuan rose from 6.8 to 6.45, and then returned to 6.67.

In January 2018, the RMB exchange rate rose to 6.29.

After the opening of the Sino US trade war, the RMB depreciated from 6.29 to 6.98 at the beginning of November 2018, but then the appreciation mode was opened, and the offshore renminbi was 6.6715 in March 21, 2019.

In July this year, the exchange rate of the US dollar against the RMB basically fluctuated between 6.85 and 6.89, but it never broke 7. In the morning of August 5th, offshore RMB against the US dollar fell below the "7" barrier, the lowest depreciation to 7.0421, and the era of breaking 7 came.

Export enterprises are breathing, and enterprises such as textiles and garments are benefiting.

For those engaged in traditional foreign trade or cross-border electricity providers, the rise or fall of the renminbi will be related to their immediate interests.

Export enterprises generally settle in US dollars, and the renminbi depreciates. That is, one dollar can exchange more Renminbi and can buy more Chinese goods. Under this background, Chinese exporters can further enhance their international competitiveness and get more overseas orders.

In particular, textile, clothing and other price sensitive labor intensive enterprises are constrained by factors such as raw materials and manpower costs. These factories are becoming increasingly thin and difficult to survive. The renminbi will depreciate and these enterprises will get a breathing space.

In addition, foreign exchange earnings can be obtained for enterprises or individuals with dollar in hand.

However, the industry pointed out that, in addition to the completion of delivery, the process of settlement, and did not take a fixed exchange rate orders, because of the two days' slump, "cheap", other orders can not immediately get additional profits, and some export companies even because they did not take advantage of the psychological imbalance, after all, the early order locked foreign orders will not be affected by the rise and fall of the renminbi, and there is no way to enjoy the benefits of sudden devaluation.

In general, the depreciation of RMB is good for export enterprises.

What is the trend of RMB exchange rate after "breaking 7"?

In an interview with the financial times, the head of the people's Bank of China said that the trend of the RMB exchange rate depends on the fundamentals for a long time. In the short run, the market supply and demand and the trend of the US dollar will also have a greater impact. The marketization of exchange rate formation mechanism is conducive to the role of price leverage in regulating the balance between supply and demand, and plays an important role in regulating the "automatic stabilizer" of the economy and the balance of payments. As a big country, China has a wide range of manufacturing industries, a relatively sound industrial system, strong competitiveness in the export sector, and moderate import dependence. The RMB exchange rate volatility has a strong regulatory effect on China's balance of payments, and the foreign exchange market itself will find a balance.

From a macro perspective, China's economic fundamentals are good, the economic structural adjustment has achieved positive results, growth resilience is strong, the macro leverage ratio remains basically stable, the financial situation is sound, financial risks are overall controllable, the balance of payments is stable, cross-border capital flows are largely balanced, and foreign exchange reserves are adequate, all of which provide a fundamental support for the RMB exchange rate. Especially in the context of the easing of monetary policy in developed economies such as the US and Europe, China is the only country in the major economies that maintains the normal monetary policy. The valuation of RMB assets is still low and its stability is stronger. China is expected to become a "depression" of global capital.

It also points out that the RMB exchange rate is likely to depreciate or to appreciate. The two way floating is normal. It is not only for enterprises, even more professional financial institutions, can hardly predict the trend of exchange rate.

In view of this, in order to reduce the risks caused by exchange rate fluctuations, foreign trade enterprises can exchange foreign exchange derivatives through foreign exchange derivatives, such as forward settlement, foreign exchange swap and foreign exchange options.