[ abstract ]Peter Tchir, head of macro strategy at AcademySecurities, pointed out that if the US $4 trillion liquidity released by the sharp expansion of the Federal Reserve's balance sheet in the past three months cannot be effectively recovered, it is bound to push the US dollar index below 95.
Peter Tchir, head of macro strategy at Academy Securities, pointed out that if the US $4 trillion liquidity released by the sharp expansion of the Federal Reserve's balance sheet in the past three months could not be effectively recovered, it would certainly push the US dollar index below 95.
The negative effects of the unlimited QE measures of the Federal Reserve and the recent social unrest in the United States are quietly fermenting on the US dollar.
As of 20:00 on June 8, Beijing time, the dollar index hovered around 96.96, falling to 96.4, the lowest point since mid March. It is worth noting that the dollar index has plummeted from 99.72 to around 97 in the past 10 trading days, with a decline of more than 2.7%.
Marc Chandler, director of global foreign exchange strategy of Brown Brothers Harriman (BBH), told reporters of the 21st Century Economic Report that the reason why the dollar index fell rapidly was that, on the one hand, social unrest led many overseas capital to be pessimistic about the economic recovery of the United States, and they sold dollar assets to avoid risks; On the other hand, the negative effects of the Fed's unlimited QE measures began to appear.
"In the past two months, the dollar index still hovered around 100 when the Federal Reserve took unlimited QE measures. One important reason is that financial institutions are worried that the dollar shortage has not been completely alleviated. Now, with the resumption of work and production in more and more countries, the dollar shortage continues to improve. The focus of financial institutions has begun to shift to the dollar flow caused by the unlimited QE measures of the Federal Reserve Sex flooding, as well as the huge downward pressure on the dollar index. " He pointed out.
Peter Tchir, head of macro strategy at Academy Securities, pointed out that if the US $4 trillion liquidity released by the sharp expansion of the Federal Reserve's balance sheet in the past three months could not be effectively recovered, it would certainly push the US dollar index below 95.
It is worth noting that the recent rapid decline of the dollar index has also created a good opportunity for emerging market currencies to stabilize and rebound. As of 20:00 on June 8, the exchange rate of RMB against the US dollar in the offshore market hit 7.0628, the highest value since May.
In the view of Xie Yaxuan, the chief macro analyst of China Merchants Securities, given the current steady recovery of China's economy and the possibility that the US dollar index may fall below 95 in the next two quarters, the RMB exchange rate against the US dollar will return to around 7 in the future.
In the past 10 trading days, the US dollar index plummeted from 99.72 to around 97, with a decline of more than 2.7%- IC photo
A Probe into the Strange Phenomenon of "US Dollar Declining and US Stock Rising"
"What should come will come sooner or later," a Wall Street hedge fund manager pointed out to reporters. Since the Federal Reserve offered unlimited QE measures in mid March, many hedge funds expected that the US dollar exchange rate would suffer a sharp decline.
However, this expectation was not realized until the end of May.
Since May 27, the dollar index has been falling from 99.72 all the way. By 20:00 on June 8, the dollar index had fallen to around 97, the lowest point since mid March.
In Marc Chandler's view, there are two factors driving the pressure on the US dollar index. First, the recent social unrest in the United States has led to more twists and turns in the economic recovery of the United States, forcing many overseas investment institutions to bet on the decline of the US dollar exchange rate and even withdraw some US dollar assets for hedging. Second, the negative effects of the unlimited QE measures of the Federal Reserve have begun to appear - with the economic recovery of the United States, the market has noticed that US $4 trillion of QE funds are leading to the overflow of US dollar liquidity, So they bought down the US dollar exchange rate.
Although the Federal Reserve also took note of this problem and began to reduce the weekly QE bond purchase scale step by step, the financial market still worried that if the US $4 trillion liquidity released by the Federal Reserve in the past three months could not be quickly "withdrawn", it would have a great downward impact on the dollar exchange rate valuation.
"At present, many overseas capitals are betting on the long-term decline of the US dollar index, including buying the put option of the US dollar index with the strike price below 95 in the next six months," a US foreign exchange broker told reporters.
In sharp contrast, many Wall Street hedge funds are buying up US stocks on a large scale in view of the overflow of US dollar liquidity.
The latest weekly risk exposure report released by Goldman Sachs Institutional Investors Department (PB) shows that the current net leverage ratio of hedge funds has risen to 75.0%, the highest level in the past two years. Behind this is that a large number of hedge funds are carrying out short covering for US stocks, making the stock subscription volume soar to the high point in the past 10 years. At the same time, the bearish/bullish ratio (PCR) has dropped to the lowest point in history.
In the view of the US foreign exchange broker, this is precisely the domino effect of the unlimited QE measures of the Federal Reserve that is continuing to ferment - on the one hand, it is significantly pushing up the prices of assets such as US stocks, leading to a complete disconnect between the high valuation of US stocks and the fundamentals of the current US economic recovery; on the other hand, the US dollar index continues to fall sharply, driving more and more overseas investment institutions to reduce their US dollar assets, Accelerate the diversification of asset allocation.
"In fact, the strange phenomenon of the US dollar falling sharply but US stocks rising sharply is rare in history. It indicates that either US stocks are overvalued or the US dollar is wrongly killed," he pointed out.
Emerging market currencies benefit
The rapid decline of the US dollar has also created a good opportunity for emerging market currencies to stabilize and rebound.
The reporter noticed that as of 20:00 on June 8, the exchange rates of Russian ruble, South African rand, Thai baht and other emerging market currencies against the US dollar had all hit the highest values since late March. The past 10 trading days benefited from the sharp decline of the US dollar, and their growth rates were all above 5%.
"This has temporarily freed many emerging market currencies from the vicious circle of economic recession caused by the epidemic - capital outflow - sudden increase in foreign debt repayment risk - exchange rate decline." Peter Tchir told reporters. Before the end of May, many hedge funds were still actively planning to sell short, which had short-term foreign debt repayment pressure, or the emerging market currencies that sought emergency US dollar loan assistance from the IMF. Now, the US dollar suddenly fell sharply, forcing them to settle all short positions and "return to failure".
The above-mentioned Wall Street hedge fund managers pointed out that not all hedge funds left in a hurry - if emerging market countries could not get out of the haze of the epidemic impact and increase the pressure of economic recession, they would come back. For example, recently, many hedge funds are paying close attention to the short selling opportunities of the Brazilian real. Although benefiting from the decline of the US dollar, the exchange rate of the Brazilian real against the US dollar has risen by more than 7% in the past 10 trading days, many hedge funds are still increasing their short selling efforts at high prices in view of the severe situation of prevention and control of the epidemic in Brazil.
To completely reverse the dilemma of capital outflows and falling exchange rates, emerging market countries need to be hard on their own to strike iron - only if the economic fundamentals continue to improve is an effective way to curb the speculative short selling of hedge funds. For example, the fundamentals of China's economic improvement and the increasingly effective prevention and control of the epidemic are making the RMB completely recover its exchange rate decline in May.
The reporter learned from many sources that the decline of the US dollar at the end of May was only a secondary factor to promote the stability and rebound of the RMB exchange rate. The more important driving force was that more and more overseas capital continued to be optimistic about the continued improvement of China's economic fundamentals, and increased positions in RMB assets in succession. For example, the net inflow of funds from the north in May exceeded 30 billion yuan, and overseas investment institutions increased positions in RMB bonds by 111.9 billion yuan, All these have limited the decline of the RMB exchange rate. Now the US dollar has plummeted, and the RMB exchange rate can quickly recover its lost ground.
"More importantly, the recent measures taken by the People's Bank of China to stabilize the exchange rate are playing a great deterrent role, making the market aware that the People's Bank of China is unlikely to allow the domestic and overseas RMB exchange rate to fall below the lowest point of 7.20 triggered in September last year, making speculative capital dare not act rashly, and laying a good foundation for the RMB exchange rate to maintain two-way stable fluctuations in the reasonable exchange rate range." The above Wall Street hedge fund managers believe that.
The deputy director of CITIC Securities Research Institute clearly said that the importance of stabilizing the exchange rate in the near future is self-evident. On the one hand, in terms of the development goal of stabilizing foreign trade and foreign capital, it is crucial to maintain the basic stability of the RMB exchange rate at a reasonable and balanced level. On the other hand, when the RMB exchange rate depreciates, the A-share market tends to perform poorly. In addition, the yield of 10-year treasury bonds shows an obvious negative correlation with the RMB exchange rate, so the driving effect of stabilizing the exchange rate on actively attracting foreign investors to increase their positions in RMB assets is increasingly prominent.
"To some extent, if foreign investors continue to increase their positions in RMB assets, it will also bring about a great push for the continued stabilization of the RMB exchange rate." The aforementioned Wall Street hedge fund manager stressed.
