At the beginning of August, the RMB exchange rate against the US dollar started a wave of strong trends. A reporter from Beijing Business Daily noticed that on the evening of August 2, the RMB exchange rate against the US dollar continued to rise, hitting a recent appreciation high, and the onshore and offshore RMB exchange rates against the US dollar rose above the 7.16 and 7.15 marks respectively.
For the appreciation of the RMB exchange rate against the US dollar, the market generally believes that the direct reason is that the United States non-farm payrolls data released on the evening of August 2 was less than expected, which pushed the US dollar and US bond interest rates down, and some non-US currencies, including the RMB, rose. During the same period, the People's Bank of China and the State Administration of Foreign Exchange successively released policy signals, emphasizing "maintaining the basic stability of the RMB exchange rate at a reasonable and balanced level".
The RMB exchange rate against the US dollar is a strong "counteroffensive"
On August 2, the RMB exchange rate against the US dollar came out of a wave of appreciation in the evening trading market. Wind data shows that at around 20:30 on August 2, the appreciation of the onshore and offshore RMB exchange rates against the US dollar continued to expand, and it rose rapidly within 3 hours, breaking through multiple thresholds on the upside.
During the session, the onshore and offshore RMB exchange rates against the US dollar rose above 7.16 one after another, and the offshore RMB exchange rate against the US dollar once rose above the 7.15 mark, with the highest appreciation to 7.1433. During the same period, the onshore renminbi appreciated as much as 7.1557 against the US dollar, both hitting new highs since January 2024.
From the perspective of all-day performance, on August 2, the onshore RMB exchange rate against the US dollar opened at 7.2443, the lowest intraday depreciation to 7.2468, the highest amplitude reached 911 basis points compared with the appreciation high, and the offshore RMB exchange rate against the US dollar opened at 7.2522, the lowest intraday depreciation to 7.2526, compared with the appreciation high, the highest amplitude reached 1093 basis points.
As of the close of trading on August 2, the onshore yuan exchange rate against the US dollar was 7.1568, an intraday increase of 1.18%; The offshore yuan traded at 7.1658 against the dollar, up 1.18% on the day.
In fact, since July, the RMB has appreciated against the US dollar, with two significant appreciations in the last week of July, with the onshore RMB exchange rate against the US dollar and the offshore RMB exchange rate against the US dollar rising strongly, hitting new highs in recent months.
Based on the strong performance in July, the market is constantly discussing its subsequent trend. After entering August, the RMB exchange rate against the US dollar was relatively stable in the initial stage. The central parity of the RMB against the US dollar, which was disclosed on the morning of August 2, was lowered by 53 basis points to 7.1376 in a single day. Until the evening of the same day, the renminbi quickly "counterattacked" in the short term, completely "igniting" the financial market.
It is worth noting that while the RMB exchange rate continued to strengthen, non-US currencies generally rose, and the US dollar index continued to fall. Among them, the yen rose above 147 against the US dollar intraday, closing up 1.9% at 146.55. The U.S. dollar index fell below 104 and then approached 103, closing down 1.06% at 103.23, the lowest since March 2024.
For the rebound trend of the RMB, Zhou Maohua, a macro researcher at the financial market department of Everbright Bank, analyzed the reasons for this, saying that the United States non-farm payrolls data on the evening of August 2 was weaker than expected, and the market increased bets on the Fed's interest rate cut in September, further pushing the US dollar and US bond interest rates down. At the same time, the strong rebound of the yen spilled over, the sharp fluctuations in the European and American stock markets triggered the demand for capital hedging, and the recent domestic macro policy implementation efforts, the economic recovery is expected to strengthen, and the market is expected to be optimistic about the trend of RMB and assets.
Zhong Zhengsheng, chief economist of Ping An Securities, pointed out in the research report that there are three macro foundations for the sharp rise of the RMB: one is the decline of the dollar index, the second is the increase in domestic stable growth policies, and the third is the new high of trade surplus. In addition, the appreciation of the yen is one of the triggers for the sharp rise of the yuan.
Zhong Zhengsheng believes that since 2023, the exchange rate of the RMB and the yen has maintained a high correlation, mainly because both have the attributes of low-interest currencies in the carry trade. Although the interest rate differential between China and the United States is not as wide as the interest rate differential between Japan and the United States, the low volatility of the RMB exchange rate this year has made the RMB as a carry currency not weaker than the yen, so that the trend logic of the two is similar.
Renminbi assets are expected to be a "safe haven"
According to the United States non-farm payrolls data released on the evening of August 2, the number of non-farm payrolls increased by 114,000 in July United States, estimated to increase by 175,000, and the previous value was an increase of 206,000, which was weaker than market expectations. In addition, the unemployment rate in United States was 4.3% in July, exceeding market expectations of 4.1% and also hitting a new high since October 2021.
Wang Qing, chief macro analyst of Oriental Jincheng, believes that the continuous decline in inflation in United States, the cooling of the labor market, and the intensification of economic downside risks have formed the basis for interest rate cuts. The Fed is expected to initiate its first rate cut in September. The market's short-term risk appetite will be boosted, and the U.S. dollar index and U.S. Treasury interest rates may be weak and volatile, which is conducive to reducing the passive depreciation pressure on the RMB.
In addition to the changes brought about by external factors, China's economic fundamentals are still a solid support for the RMB exchange rate, and the regulator has recently re-emphasized "stabilizing the exchange rate". According to the official website of the People's Bank of China on August 2, the People's Bank of China mentioned in the deployment of the work in the second half of 2024 that since 2024, the RMB exchange rate has remained basically stable under the complex situation, and will strengthen the guidance of expectations in the second half of the year, maintain the basic stability of the RMB exchange rate at a reasonable and balanced level, and resolutely prevent the risk of exchange rate overshoot.
On the same day, the State Administration of Foreign Exchange pointed out that in the second half of 2024, it is necessary to optimize the exchange rate hedging service for enterprises, facilitate high-quality Belt and Road cooperation, and strengthen expectation management to maintain the basic stability of the foreign exchange market.
Regarding the follow-up trend of the RMB exchange rate, Zhou Maohua pointed out that since late April, the interest rate differential between China and the United States has peaked and fallen. China's economy is recovering steadily and prices are rising moderately, which will restrict the downward space of market interest rates. At the same time, the Fed's economy and inflation are slowing down, and the policy is gradually shifting to an interest rate cut cycle, and it is expected that the interest rate gap between China and the United States is expected to gradually narrow. If the United States job market deteriorates more than expected, it may prompt the Fed to accelerate the pace of interest rate cuts, further weakening the impact of Sino-US interest rate differentials on the RMB exchange rate.
"Although there is still great uncertainty in the overseas political and economic environment, the direction of the domestic economic recovery and the Fed's interest rate cut cycle is more certain. Based on factors such as the strong resilience of the mainland's foreign trade, the basic balance of payments and the increasing attractiveness of RMB assets, the RMB will face a more favorable environment during the year, and it is expected that the RMB exchange rate will maintain a stable and slightly upward trend, which is stable compared with major international currencies. Zhou Maohua added.
Considering domestic and foreign factors, Zhou Maohua believes that the slowdown in economic growth in advanced economies, the pressure on corporate earnings prospects, geopolitical conflicts, trade protectionism, the United States election and other factors have led to increased volatility in overseas markets. The domestic economy, policy and corporate earnings prospects are relatively certain, and RMB assets at low valuations are expected to become a "safe haven" for global funds.
Beijing Business Daily reporter Liao Meng