The RMB suddenly skyrocketed! What is the situation?

On the morning of September 11th, there was a major rebound in the onshore and offshore RMB against the US dollar during trading, with both rebounding by over 100 points.

Experts say that the August social financing data is expected to boost market confidence. At the same time, the central bank's reduction in the foreign exchange reserve requirement ratio of financial institutions also indicates limited room for RMB exchange rate depreciation. In the long run, the probability of further weakening of the RMB exchange rate is not high.

RMB rebounds significantly

According to Wind data, on the morning of September 11th, the onshore RMB/USD exchange rate rebounded significantly. As of 10:00, the onshore RMB to USD exchange rate was at 7.3241 yuan, an increase of 174 basis points from the previous trading day's closing price, and the highest intraday price was 7.3111 yuan, closing at 7.32 yuan.

More pictures reflect the expectations of international investors that the offshore RMB/USD exchange rate is also undergoing a major counterattack. According to Wind data, as of 10:00, the offshore RMB to USD exchange rate was at 7.3428 yuan, an increase of 222 basis points from the closing price of the previous trading day. The offshore RMB to USD exchange rate reached its highest intraday price of 7.3402 yuan.

At the same time, the US dollar index has shown a weak trend. According to Wind data, as of 10:08, the US dollar index closed at 104.7, down 0.28%.

It is worth mentioning that the rebound of the RMB exchange rate on the morning of September 11th was achieved against the backdrop of the rapid depreciation of the RMB exchange rate in the previous week. According to Wind data, from September 4th to 8th, the onshore and offshore RMB/USD exchange rates depreciated by 1.08% and 1.3% respectively on a weekly basis.

Why has the RMB exchange rate rebounded? The August social financing data is about to be released, and institutions expect the data to exceed expectations. According to calculations, the sensitivity of the RMB to social financing has significantly increased in the past two years.

Zhang Jingjing, Chief Macro Analyst of China Merchants Securities, believes that the August social financing data is expected to boost market confidence. At the same time, the central bank's reduction in the foreign exchange reserve requirement ratio of financial institutions also indicates limited room for RMB exchange rate depreciation.

In addition, the second quarter 2023 China's monetary policy execution report recently released by the People's Bank of China emphasizes that in the next stage, the People's Bank of China and the State Administration of Foreign Exchange will aim to maintain the basic stability of the RMB exchange rate at a reasonable and balanced level, leverage the advantages of a managed floating exchange rate system based on market supply and demand, refer to a basket of currencies for adjustment, comprehensively implement policies and stabilize expectations, make good use of various reserve control tools, regulate the supply and demand of the foreign exchange market, correct market pro cyclical and unilateral behavior, and resolutely prevent the risk of exchange rate overshoot.

What is the future trend?

Looking ahead to the future trend of the RMB exchange rate, several experts have indicated that the RMB exchange rate still faces certain external pressures in the short term and may continue to be in a bottoming out stage. In the long run, the probability of further weakening of the RMB exchange rate is not high.

In the short term, the RMB exchange rate still faces internal and external pressures. According to the Chief Economist of CITIC Securities, on the one hand, multiple recent measures to stabilize the economy have gradually been implemented, but the effectiveness of these policies still needs time to be verified. On the other hand, the resilience of the US economy may be maintained this year, and a significant economic weakness may begin to manifest next year. "In this context, it is expected that the US dollar index will continue to fluctuate widely at high levels, and the RMB exchange rate may still face external pressure in the short term," he said.

Li Liuyang, a foreign exchange expert at China International Capital Corporation (CICC), stated that there are signs of stabilization in economic data, and further accumulation of endogenous growth momentum may require the implementation of stable growth policies. The policy bottom is expected to further transition to the economic bottom, and the drag effect of economic growth prospects on the RMB exchange rate may be marginally reduced. With more and more economic data showing marginal improvement, the RMB exchange rate can receive more support from the expected recovery of domestic economic growth.

In addition, Li Liuyang stated that against the backdrop of the high US dollar index and US bond yields, last week the central bank continued to adopt measures such as adjusting countercyclical factors, controlling offshore RMB liquidity in Hong Kong, and verbally stabilizing expectations to stabilize the RMB exchange rate and stabilize expectations in the foreign exchange market. "The sustained efforts of the stable exchange rate policy may demonstrate to the market the central bank's determination to maintain stable exchange rate expectations," he said.