Continuously recovering multiple checkpoints, the RMB/USD exchange rate continues to rebound

In November, the exchange rate of the Chinese yuan against the US dollar showed a continuous upward trend. According to Wind data, the onshore and offshore RMB to USD exchange rates increased by 2.55% and 2.70% respectively throughout November, with significant increases.
Specifically, taking the offshore RMB to USD exchange rate, which reflects international investor expectations, as an example, starting from November, the offshore RMB to USD exchange rate has successively recovered from the "7.3" and "7.2" levels, rising to around 1 USD to 7.14 at the end of the month. As of the close on December 1st, the offshore RMB to USD exchange rate was at 7.1240, while the onshore RMB to USD exchange rate was at 7.1275, both of which have regained the "7.13" level.
In addition, data released by the China Foreign Exchange Trading Center shows that on November 1st, the central parity rate of the Chinese yuan against the US dollar was reported at 7.1778, and on November 30th, it was reported at 7.1018. The cumulative increase in November also reached 760 basis points.
"Recently, the rebound momentum of the RMB against the US dollar has been strong." Zhou Maohua, a macro researcher at the Financial Markets Department of Everbright Bank, stated in an interview with Securities Daily that the unexpected drop in US inflation has triggered market bets on the Federal Reserve's interest rate cut next year. US bond rates and the US dollar have plummeted, and the US China interest rate spread continues to narrow, which is good for the performance of the RMB exchange rate.
As Zhou Maohua said, as the Federal Reserve's monetary policy shifts towards expected warming, the US dollar index has shown a sustained downward trend in the past month. According to Wind data, on November 1st, the US dollar index closed at 106.6600 points, still at a high level above 106 points. However, on November 30th, the US dollar index closed at 103.5064 points, falling below the integer points of "106", "105", and "104" in a month, with a cumulative depreciation of about 3.01%.
Zhu Keli, Executive Director of the China Information Association and Founding Director of the National Research Institute of New Economy, also analyzed to Securities Daily reporters that the US dollar index depreciated by about 3.01% in November, dropping from a high of 106 points to around 103 points, which to some extent alleviated the pressure of RMB depreciation against the US dollar.
Zhou Maohua said that since the beginning of September this year, with more and more domestic indicators exceeding expectations, the momentum of economic recovery has continued to increase, and the expectations of the RMB exchange rate have changed. In addition, China's foreign trade has shown resilience, with an increase in the demand for foreign exchange settlement by foreign trade enterprises around the end of the year. In addition, market sentiment has gradually warmed up, driving the trend of foreign investment inflows, which also provides support for the RMB exchange rate.

In addition, Zhu Keli also stated that the People's Bank of China's adherence to the direction of market-oriented exchange rate reform is conducive to maintaining the basic stability of the RMB exchange rate.

On November 27th, the People's Bank of China released the "Report on the Implementation of China's Monetary Policy in the Third Quarter of 2023" (hereinafter referred to as the "Report"), which showed that in terms of the RMB exchange rate, the central bank balanced both internal and external factors. Deepen the market-oriented reform of exchange rates, timely increase the macro prudential adjustment parameters for cross-border financing, lower the reserve requirement ratio for foreign exchange deposits, leverage the role of foreign exchange self-discipline mechanisms, strengthen expected guidance, regulate supply and demand in the foreign exchange market, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level. The exchange rate of the Chinese yuan against a basket of currencies remained stable with some gains, with an appreciation of 2.9% at the end of September compared to the end of June. Market expectations have stabilized.
In the main ideas of monetary policy in the next stage, the "Report" mentioned on the exchange rate aspect, "Based on the long-term and starting from the present, we will resolutely correct the market's pro cyclical behavior, deal with the behavior that disrupts market order, prevent the risk of exchange rate overshoot, prevent the formation of unilateral consistency expectations and self strengthening, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level."
The research report released by the Minsheng Bank Research Institute believes that the "three firm" statements release a strong signal of stabilizing exchange rates. The stable exchange rate policy in 2024 is expected to continue to exert significant efforts and ensure the basic stability of the RMB exchange rate at a reasonable and balanced level.
Looking ahead to the future, Zhou Maohua said that from the trend, positive factors for the RMB exchange rate continue to accumulate, and we continue to be optimistic about the RMB's trend within the year. The relevant index reflects that the recovery momentum of China's economic activity has significantly increased, and market sentiment is showing a warming trend; At the same time, the Federal Reserve's interest rate hike is nearing its end, and indicators such as US employment indicate a slowdown in its economic outlook. From a long-term perspective of the US dollar, it should currently be in or near a weak cycle.
According to a research report by Minsheng Bank Research Institute, overall, as various policy measures in China continue to take effect and the economy continues to rebound, RMB assets will have sustained attractiveness. Coupled with the weakening trend of the US dollar index, the RMB exchange rate is expected to trend back up in 2024, and the RMB to US dollar exchange rate is likely to return to within 7.