The offshore RMB exchange rate against the US dollar rose above the RMB 7.17 mark on Monday (20th), rising nearly 470 points, while the onshore RMB appreciated simultaneously.
Hong Kong’s Hang Seng Technology Index rose 2% intraday on Monday, and the Hang Seng Index rose 1.6%. The three major indexes of the A-share market also rose.
Fiona Lim, senior foreign exchange analyst at Malayan Banking, said that like most Asian currencies, the yuan exchange rate may have passed a turning point. Although China’s economic weakness has caused some downward pressure on the RMB, the policy differences between the central banks of the United States and China have also put very obvious cyclical pressure on the RMB.
Guojin Securities believes that the rapid weakening of the US dollar is the direct driver of the appreciation of the RMB exchange rate. The U.S. dollar index has fallen sharply since late October and is approaching the 100 mark. At 9:30 Taiwan time on Monday, the US dollar index was trading at 103.886.
The fall in the dollar is the result of three factors: the easing of supply-side shocks to U.S. debt, weak economic data, and easing of speculative disturbances. Guojin Securities wrote in the report:
First, the supply-side shock to U.S. debt has eased. The US Treasury Department expects net debt issuance to fall to US$776 billion, US$76 billion less than its July estimate.
Second, economic data are weak and the US Federal Reserve (Fed) has a dovish attitude; the Purchasing Managers Index (PMI), Non-Farm Employment Report, Consumer Price Index (CPI) and other data released successively in November were not as good as market expectations. Market expectations for the Fed to cut interest rates next year are gradually rising.
Third, speculative disturbances have eased, and non-commercial short positions in U.S. debt have dropped significantly.
Guojun Securities said that behind the appreciation of the RMB, in addition to the support of external factors such as the expected end of the Fed’s interest rate hike cycle, there is also the contribution of the central parity rate. The central parity rate serves as a “stabilizer” for the foreign exchange market and forms a strong support for the renminbi against the background of falling costs of shorting offshore renminbi.
Data from the China Foreign Exchange Trading Center showed that the central parity rate of RMB against the US dollar increased by 116 points to 7.1612 yuan, setting a record since August.
Looking forward to the market outlook, Huaan Securities believes that although the factors for this round of RMB exchange rate depreciation have eased, conditions for a reversal have not yet been seen, and we still need to wait for all conditions to be in place.
Zheng Xiaoxia, an analyst at Huaan Securities, said that the conditions for exchange rate reversal include the following points:
First, the U.S. economy has yet to show signs of stalling.
Second, although the Fed will no longer raise interest rates, central bank officials still maintain policy interest rates at a high level, and the possibility of cutting interest rates in the short term is low.
Third, China’s economic growth rate in the third quarter reached 4.9%. Although it was better than market expectations, the domestic economy will not recover strongly. This year’s growth rate will be difficult to rise above 5.5%, and it will not be able to support a sharp appreciation of the RMB.