As of 19:00 on February 24, the exchange rate of USD/RMB in the onshore market (CNY) and the exchange rate of USD/RMB in the offshore market (CNH) hovered around 7.2502 and 7.2498 respectively, hitting intra-day highs of 7.2278 and 7.2252 respectively. This means that the domestic and foreign RMB exchange rate has significantly stabilized and rebounded from the 7.3 line two weeks ago. The central parity rate of the yuan against the US dollar today was at 7.1726, weaker by 9 points.
Multiple factors drive the rebound of the RMB
According to industry insiders, the RMB exchange rate has shown a recovery trend in the past two weeks, mainly affected by three major factors. First, the Trump administration continued to increase trade protectionism policies, which intensified the global financial market's concerns about the risk of US economic growth, resulting in the US dollar index falling from 108.4 to 106.6; Second, the launch of DeepSeek makes Chinese technology stocks increasingly sought after by global capital, driving the demand for RMB in the offshore market; Third, under the influence of the continuous rise in China's national bond yields after the holiday, the inverted interest rate spread between China and the United States has narrowed significantly, so that overseas quantitative investment funds have correspondingly increased their long positions in offshore RMB.
The recent recovery of the RMB exchange rate at home and abroad has also benefited from the market pursuit of offshore Chinese Treasury bonds issued by the Ministry of Finance of China in recent days, showing that global capital is enthusiastic about the allocation of RMB assets.
Wang Qing, an analyst at Oriental Jincheng, believes that in the short term, the trend of the US dollar will continue to be the main factor affecting the RMB exchange rate. However, given the greater uncertainty about the future tariff policy of the US government, the dollar will face significant volatility in the coming period.
The recovery of the RMB exchange rate has been strongly supported
The renminbi's continued rise in recent days has also been helped by global interest in offshore government bonds issued by China's Ministry of Finance in Hong Kong. According to industry insiders, some overseas investment institutions therefore believe that relevant Chinese departments attract more overseas capital to subscribe to offshore Chinese Treasury bonds by moderately raising the interest rate of offshore Treasury bonds, further enhancing the enthusiasm of global capital to subscribe to offshore Chinese Treasury bonds, highlighting the popularity of RMB assets in the global market, and injecting stronger support to the stabilization and rebound of the RMB exchange rate.
On February 13, the "Monetary Policy Implementation Report for the fourth Quarter of 2024" released by the People's Bank of China reiterated that it will continue to take "three resolute" measures, that is, resolutely correct the pro-cyclical behavior of the market, resolutely deal with the behavior of disrupting market order, and resolutely prevent the risk of exchange rate overshoot.
Fan Ruoying, a researcher at the Research Institute of the Bank of China, believes that as China's steady growth policy continues to take effect, China's economic fundamentals continue to stabilize and recover, and relevant Chinese departments release clear signals of stable exchange rate, the foreign exchange market is expected to continue to improve in the future, which will continue to provide strong fundamental support for the RMB exchange rate.
What happens next?
Looking to the future, Wang Qing believes that the short-term trend of the US dollar is still the main factor affecting the RMB exchange rate, and it is expected that the US dollar index will be in a state of large fluctuations in the future, which means that the wide fluctuation process of non-US currencies such as the RMB against the US dollar will also continue for some time.
"Since the beginning of this year, the appreciation rate of the RMB has been relatively slow, and the three major basket of RMB exchange rate indexes such as CFETS (China Foreign Exchange Trade System) have declined steadily, showing that the depreciation pressure of the RMB is gradually released, which will accumulate stronger resilience for the RMB exchange rate in the later period." Wang Qing believes that keeping the RMB exchange rate basically stable at a reasonable and balanced level does not mean that the RMB exchange rate against the US dollar should remain basically unchanged or stick to a specific price, but means that the three major basket of RMB exchange rate indexes such as CFETS remain basically stable and adapt to changes in economic fundamentals. During the year, in order to effectively respond to changes in the external economic and trade environment, the RMB exchange rate tends to be more flexible, but it will continue to fluctuate in both directions near a reasonable and balanced level.
In the medium and long term, Wang Youxin, a senior researcher at the Research Institute of the Bank of China, said that the RMB exchange rate has the basis and conditions to remain basically stable at a reasonable and balanced level. On the one hand, the Chinese economy has great resilience and potential for development, and its long-term sound fundamentals remain unchanged. With the continued strength of the domestic incremental policy and the continuous optimization of the economic structure, the RMB exchange rate will be strongly supported. On the other hand, the rapid development of emerging industries and emerging technologies represented by robots and new energy vehicles, and widely used in the upstream and downstream industrial chain and consumption scenarios, has effectively promoted the formation and development of new quality productivity, and will promote the high-quality development of China's economy. In addition, China's foreign exchange management department has a wealth of exchange rate management tools and policy space, which can flexibly respond to market changes and keep the exchange rate basically stable.
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