The RMB exchange rate rebounded strongly!
After a slight decline in the New Year, the RMB exchange rate began to stabilize significantly. On January 20, the offshore RMB against the US dollar rose sharply to 7.26, up more than 800 points in the day.
On January 21, data from the China Foreign Exchange Trading Center showed that the central parity rate of the RMB against the US dollar was 7.1703, up 183 points, setting a new high since November 11, 2024.
Industry insiders said that after the pressure of RMB depreciation was released, the positive factors that promote a new round of RMB appreciation are gathering.
In addition, the stability of China’s import and export growth has been further enhanced, and a reasonable trade surplus will become a strong support for the RMB exchange rate. In addition, the peak season for foreign exchange settlement is entering before the Spring Festival, and the accumulated foreign exchange settlement demand in the market is expected to help the appreciation of the RMB.
The US dollar index fell sharply in the intraday session on the 20th, once dropping below 108, and fell more than 1.3% in the day. Analysis pointed out that the weakening of the US dollar index is mainly because the market believes that Trump will introduce measures to increase tariffs, which will bring more uncertainty to the US financial market, core inflation data and the Fed’s interest rate cut process.
Zhong Zhengsheng, chief economist of Ping An Securities, said that at present, the central bank has a strong desire to “stabilize the exchange rate”, and the further upward space of the US dollar index is relatively limited. With the implementation of a package of policies to stabilize growth, the RMB exchange rate has a basis for stability.
Zhao Qingming, deputy director of the Huiguan Information Research Institute, believes that Trump’s latest statement on trade policy has eased compared with the tough stance during the election, which has reversed and rebounded the depreciation of non-US currencies caused by concerns. Since the end of September last year, a series of non-US currencies have fallen beyond expectations, and the RMB exchange rate will usher in a wave of rebounds in the near future with the yen, euro, pound, etc.
Fan Ruoying, a researcher at the China Banking Research Institute, said that the depreciation pressure faced by the RMB exchange rate comes from the continued strong employment situation in the United States and the Fed’s more cautious interest rate cuts. However, my country’s economic fundamentals are generally stable, and there are sufficient exchange rate control tools, so the possibility of a large unilateral depreciation of the RMB is small.
It is worth noting that the loan market quotation rate (LPR) announced by the National Interbank Funding Center authorized by the People’s Bank of China on the 20th shows that the 1-year and 5-year LPRs will remain unchanged in January 2025, which also sends a signal to the market that the regulation will stabilize the exchange rate.
Regarding the future trend of the RMB exchange rate, Dong Ximiao, chief researcher of China UnionPay, analyzed that if the LPR declines too quickly, it may increase the pressure on the RMB exchange rate. The continued unchanged LPR will help maintain the basic stability of the bank’s net interest margin, improve the stability of the banking system and the sustainability of serving the real economy; it will help ease the pressure of the interest rate gap between China and the United States and promote the basic stability of the RMB exchange rate.