The rebound in the RMB exchange rate is expected to continue
As the U.S. dollar index weakened, the RMB rebounded strongly in November, and the onshore and offshore RMB exchange rates against the U.S. dollar increased sharply by about 2,000 basis points. On November 30, the central parity rate of RMB against the U.S. dollar hit a new high in more than five months at 7.1018. At the time of writing, the onshore and offshore RMB were both around 7.13. Looking ahead to the market outlook, most industry insiders believe that the rebound in the RMB exchange rate may not be over yet.
In November, the onshore and offshore RMB exchange rates changed from the sideways trend of the previous two months and rebounded sharply. The onshore and offshore RMB exchange rates against the US dollar both increased by more than 2.5%. At the same time, the U.S. dollar index fell from a high of 107 to 103, reaching its lowest level in three and a half months. As of press time, the U.S. dollar index fell 3.45% in November.
The weakening of the US dollar index is related to the suspension of interest rate hike expectations. As U.S. inflation cools, the market expects the Federal Reserve to stop raising interest rates. Two hawkish Fed officials hinted that interest rates will remain unchanged in December, strengthening market expectations that the Fed’s interest rate hike cycle will end.
Looking back at the recent rally in the RMB, internal and external factors such as the tightening cycle of global central banks coming to an end, domestic policies to stabilize exchange rates continue to increase, and financial regulatory authorities continue to release positive signals have become a common driving force.
Recent decisions by the Federal Reserve, Bank of Canada, Bank of England, and the European Central Bank to keep interest rates unchanged at their latest meetings have led many institutions to believe that the global interest rate hike cycle may be over.
In addition, since the beginning of this year, policies to stabilize the exchange rate have continued to be stepped up, and financial management departments have continued to release positive signals regarding the RMB exchange rate to stabilize market expectations.
The latest third-quarter monetary policy implementation report released by the central bank emphasized its commitment to a managed floating exchange rate system based on market supply and demand and adjusted with reference to a basket of currencies, in order to maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
Wu Chaoming, deputy director of the Financial Information Research Institute, pointed out that there are three main reasons for the sharp appreciation of the RMB: the depreciation of the U.S. dollar index, the expectation that the Fed’s interest rate hike cycle has ended, and the stabilization of the domestic economy.
Looking forward to the market outlook, the chief economist of CITIC Securities believes that as the domestic economy stabilizes and rebounds, the RMB is expected to stabilize and rebound.
Li Liuyang, chief analyst of foreign exchange research at the CICC Research Department, predicts that the market will become more random after this wave of gains, and the RMB may enter a two-way fluctuation phase, but this round of RMB exchange rate recovery is likely not over yet.
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