Since the onshore and offshore RMB exchange rates against the U.S. dollar both fell below the “7” mark on May 17, the RMB exchange rate against the U.S. dollar has continued to be under pressure. In the three working days since June, the RMB exchange rate has been hovering at 7.09. On June 6, the central parity rate of the RMB exchange rate exceeded 7.1 against the US dollar.
Fluctuations in the exchange rate will definitely have an impact on the owners of textile foreign trade business. If the foreign exchange is settled now, profits will be squeezed again.
The foreign trade environment is not ideal
After the changes in the textile market in the past few years, the environment has undergone earth-shaking changes, especially in the foreign trade market. The cake in the foreign trade market has shrunk sharply.
Especially in the European and American markets, what European and American buyers valued most was the integrity of the manufacturer, and making money came second. Generally speaking, the quality and price of fabrics exported to the European and American markets were higher than those in other markets, and the profit margins were also low. bigger.
Now, according to the editor, buyers in the European and American markets have begun to care about costs. The boss of a company that specializes in foreign trade complained to the editor: “I am not afraid that foreigners have high demands, but I am afraid that foreigners have learned to bargain.”
And according to the boss’s reaction, these customers are all old customers, and they have to do it even if the profit is small. Nowadays, maintaining customers is as important as making money. Once the price has been signed and negotiated, it cannot be changed at will. Even if there is no money to be made, good integrity must still be established in front of customers.
Therefore, under this current situation, many companies have to consider whether they should settle foreign exchange immediately and stop losses in time.
Foreign trade companies wait and see with currency holdings
Currently, many foreign trade companies choose to wait and see. Therefore, our country’s foreign exchange deposits have been increasing since the beginning of the year. Although the RMB has depreciated slightly against the US dollar, there is still room for more upside in the future.
Looking forward, the USD/CNY exchange rate is forecast to reach 6.8 by the end of the year. As China’s economy continues to recover and the Federal Reserve may end its interest rate hike cycle in the coming months, the RMB is expected to appreciate faster against the U.S. dollar in the second half of the year.
Looking back on the past, the RMB exchange rate against the US dollar has “broken 7” three times: the first time was in August 2019, the second time was in February 2020, and the third time was in September last year. The first two times took 5 months. Back below 7, it took 3 months last year.
Of course, for textile foreign trade companies, exchange rate risks arise from the time when the foreign trade company signs a contract to the completion of production and receipt of the final payment. When all the payment is credited to the company’s account, the only initiative left for you is to settle foreign exchange on the rise.
But for today’s textile people, exchange rate depreciation is not a bad thing.
Lower exchange rates benefit exports
The weakening of the RMB exchange rate will bring certain price advantages to export enterprises, thus increasing the competitiveness of enterprises’ exports to a certain extent. However, changes in the exchange rate will not have an immediate impact on exports, and the impact will not be immediate in the short term. It is clear.
Although a lower exchange rate will increase the import costs of enterprises, the price of polyester filament will have a greater impact on textile enterprises. Since crude oil is the cost end of polyester filament, it will still be affected by international oil prices.
However, the current fluctuations in the RMB exchange rate will not be more volatile. Foreign trade companies should adhere to the “risk neutral” principle and avoid unilateral bets. When dealing with the risk of exchange rate fluctuations, foreign trade companies can also appropriately increase the hedging ratio and reduce foreign exchange risk exposure.
Because this depreciation of the RMB is more affected by external factors. The current fundamentals do not appear to have many factors supporting the depreciation of the RMB. The domestic economy is also recovering steadily. The main reason for this round of depreciation of the RMB exchange rate is the rise of the US dollar index.
In short, now the textile bosses just hold on to their wallets, are not in a hurry to settle foreign exchange, and maintain a wait-and-see attitude. After all, profits are already so low, and now the settlement of foreign exchange is even worse. However, with the current internationalization of RMB, companies can also actively adopt RMB settlement methods to directly avoid foreign exchange risks at the source.
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