How to view the continuous rebound of the onshore and offshore RMB against the US dollar breaking 714 in the current round of RMB exchange rate?

Boosted by the surge in the mid-point rate, both onshore and offshore Chinese yuan to US dollar exchange rates broke through the key level of 714, rebounding nearly 15% over three trading days Data from the China Foreign Exchange Trading System showed that on November 21, the mid-point rate of the yuan against the dollar was reported as 71406, reaching its highest level since August 8, 2023, with a increase of 206 basis points, the largest since July 14 After the mid-point rate was determined, the offshore yuan to US dollar exchange rate, which reflects the expectations of international investors, surged directly, breaking through the levels of 715 and 714 successively, reaching a high of 71361, an appreciation of over 03% compared to the previous trading day, rising significantly for three consecutive trading days with a cumulative increase of nearly 15% On November 17 and 20, the offshore yuan to US dollar exchange rate increased by 040% and 074%, respectively Boosted by the mid-point rate, the spot exchange rate of the yuan against the dollar opened above the 714 level and reached a high of 71301, an increase of over 400 basis points compared to the previous trading day, and a rise of more than 05% Based on the closing price of the day, the spot exchange rate of the yuan against the dollar rose more than 15% in the past two trading days Meanwhile, after a significant drop of 151% on November 14, the US dollar index has been declining for four consecutive trading days since November 16, with a cumulative decline of nearly 1% Boosted by the surge in the mid-point rate, both onshore and offshore Chinese yuan to US dollar exchange rates broke through the 714 level

Currently, everyone’s expectation is that it will be very difficult for the US dollar to continue raising interest rates, so the US dollar index is constantly falling.

During this time, other currencies against the US dollar have also been steadily appreciating. The US dollar has basically reached the end of its interest rate hikes, and it’s just a matter of when it will start lowering rates.

Based on these expectations, the long-term trend for the US dollar will likely be a volatile depreciation.

The RMB exchange rate against the US dollar will certainly continue to appreciate, waiting for when the US officially begins raising interest rates and global liquidity improves.

The RMB exchange rate will continue to appreciate, and at that time, returning to the era of a 6 RMB to 1 USD exchange rate is inevitable, and RMB assets will also begin to appreciate.

In theory, the pressure on the RMB exchange rate should gradually alleviate, and RMB assets should benefit greatly.

However, the A-share market still maintains its own characteristics, relatively independent from others.

In the past, the pressure on the RMB exchange rate was mainly due to the high expectations of a US interest rate hike, and no one knew how long the US dollar would continue to raise rates.

At that time, our second-quarter GDP fell below expectations, and economic data was somewhat unstable.

Now, the third-quarter GDP has exceeded expectations, and trillions of yuan of national bonds have been issued to boost GDP.

Our own economy has gained stability, the US dollar index is weakening, and interest rate hike expectations have basically disappeared.

With this back and forth, the future of the RMB exchange rate will be a pattern of volatile appreciation.

In the medium term, this is the trend of a volatile appreciation for the RMB, sooner or later returning to the era of 6 RMB to 1 USD. In the long term, it will fluctuate within a range without the possibility of a one-way movement.

It will continue to oscillate within the large range of 6-7, and will be relatively stable.

Moreover, the government has always said that the RMB exchange rate cannot move in one direction.

Being too low or too high is not good and will affect trade.

Many netizens have been clamoring for 8 or 9, and when it reaches around 7.3, many people start talking about a one-way movement.

When it reaches around 6, many people will definitely start clamoring for 5, ignoring the importance the government places on the exchange rate.

What the government wants is for the exchange rate to fluctuate within a range and remain relatively stable within a range that does not affect trade.

It will not deviate too much from its trajectory. This is the long-term situation for the exchange rate.

In the short term, the RMB exchange rate will not continuously appreciate in a one-way direction at such a rapid pace because the US dollar index will also have some rebound when its decline is too significant.

And recently, as the yields of long-term US bonds have rapidly fallen, the Federal Reserve has started to consider being hawkish again.

Therefore, in the short term, there may be a lot of back-and-forth movements.

The judgment of a trend of volatile appreciation will be more rational and objective.

It will be difficult for it to continuously appreciate without turning back.

RMB Rebound Benefits Monetary Policy

The rebound of the RMB this time is relatively timely, as our country has accelerated the pace of interest rate cuts since June of this year, and the RMB has also faced considerable depreciation pressure. This has brought considerable difficulty to the formulation of our country’s monetary policy.

If the pace of interest rate cuts continues to accelerate, it will be unfavorable to the long-term strategy of RMB internationalization. If the pace of easing is tightened, not only will the current easing be in vain, but it will also be detrimental to alleviating the increasingly severe problem of structural deflation.

Now that the exchange rate has rebounded, it provides a great deal of operational space for monetary policy. With the rebound of the RMB exchange rate, the risk of accelerating the pace of interest rate cuts will be correspondingly reduced. If the RMB is still rapidly depreciating, accelerating the frequency of interest rate cuts will inevitably cause the RMB exchange rate to continue to plummet. However, this problem has been greatly alleviated with the recovery of the RMB.

This means that from the end of this month to the first and second quarters of next year, we are very likely to usher in an unprecedented loose monetary policy cycle, whether it is the frequency of reserve requirement ratio cuts and interest rate cuts, or the expansion speed of fiscal deficits, will all be significantly increased.

The dual force of fiscal and monetary policies is conducive to injecting the released liquidity into the real economy, thus avoiding the embarrassing situation of liquidity circulation only relying on monetary policy in the past year.

Although M2 and other data have maintained a relatively high level of growth in the past year, many people have used this as a basis to deny that we are facing deflationary pressures. But in fact, we can see from deposit and loan data that the liquidity released by the central bank has not flowed widely into the real economy, but has been circulating in the financial system, thereby resulting in ineffective stimulation of the real economy.

For example, in the first half of this year, China’s RMB deposits increased by nearly 20 trillion, reaching a historical high, which was significantly higher than the historical growth rate during the same period. This largely represents a decrease in the willingness to invest and consume, and an increasing tendency to save. In macroeconomics, this is called “liquidity preference” and is one of the three major causes of economic crises.

Now that the RMB exchange rate has ended its weak cycle, our fiscal and monetary policies can more confidently move towards a loose cycle. Whether it is the recovery of corporate production, the promotion of social investment, or the resolution of national debt, we can only rely on releasing a huge amount of liquidity and directing it towards the real industry under the guidance of fiscal expenditures.

Regardless of whether these industries will generate huge economic benefits in the future, it does not prevent them from providing more jobs and attracting more investment participation in the supply chain due to production expansion at present.

Although this loose path is accompanied by significant risks of deficits and potential inflation, the current problems are far greater than future problems. We cannot choose to starve to death directly because of fear of indigestion.

Factors Affecting the RMB Exchange Rate

The continuous rebound of the RMB exchange rate can be interpreted from the following aspects:

  1. Improvement in economic fundamentals: The steady growth of the Chinese economy and the deepening of reform and opening up have made RMB assets attractive globally. Especially in the context of weak global economic recovery, the stability and resilience of the Chinese economy have become more prominent, attracting a large influx of capital.

  2. Impact of policy factors: The Chinese government has taken a series of measures including strengthening cross-border capital flow monitoring and promoting RMB internationalization, which help stabilize exchange rate expectations and enhance market confidence.

  3. Influence of the US dollar exchange rate trend: The volatility of the US dollar exchange rate also has a certain impact on the RMB exchange rate. In recent years, the weak recovery of the US economy coupled with the loose monetary policy implemented by the Federal Reserve has led to an overall weakness in the US dollar exchange rate, providing favorable conditions for the rebound of the RMB exchange rate.

  4. Adjustment of market expectations: As market expectations for global economic recovery gradually improve, investors' preference for risk assets rises, which also drives the rebound of the RMB exchange rate.

Regarding the continued rebound of the RMB exchange rate, the following aspects can be considered:

  1. Impact of exchange rate fluctuations on the economy: Exchange rate fluctuations can affect China’s exports, imports, investments, consumption, and other aspects. In situations of large exchange rate fluctuations, companies need to strengthen risk management to avoid losses caused by exchange rate volatility. At the same time, the government also needs to take measures to stabilize exchange rate fluctuations in order to maintain stable economic growth.

  2. Regulation of capital flows: In the process of promoting RMB internationalization, it is necessary to strengthen the regulation of capital flows to avoid excessive inflows or outflows of capital, in order to maintain economic stability and sustainability.

  3. Prediction of RMB exchange rate trends: Accurately predicting the RMB exchange rate trend is crucial for investors. This requires comprehensive analysis of global economic conditions, policy trends, market sentiment, and other aspects, in order to make correct investment decisions.

In summary, the continuous rebound of the RMB exchange rate in this round is the result of various factors working together. When facing exchange rate fluctuations, companies and governments need to take measures to deal with risks and challenges, while also strengthening their ability to regulate capital flows and predict exchange rate trends.

The US Dollar Falls Slightly and Remains Stable

What rebound?

The US dollar has simply fallen and remains unchanged.