RMB/USD Rate Retreats Slightly After Hitting New Stage High

The RMB/USD rate hit a new stage high recently. Wind data showed that on August 17, the offshore RMB/USD rate briefly rose to 6.7376 intraday, while the onshore RMB/USD touched 6.7370, both setting new highs since February 6, 2023, that is, a three-and-a-half-year peak.

Commenting on the latest surge in the RMB/USD rate, Ming Ming, chief economist at CITIC Securities, told Securities Daily reporters that recently released US employment data show further weakening of the labor market, while prices have continued moderate performance, with secondary inflation effects muted. Against a backdrop of weakening US economic data, market expectations of a Federal Reserve rate hike have been recalibrated. Coupled with hawkish policy expectations for the European Central Bank and the Bank of Japan, the US dollar index has fallen below 100. With the previous strong-dollar external pressure easing at the margin, combined with stable domestic economic performance, the RMB has gradually appreciated.

Wang Qing, chief macro analyst at Golden Credit Rating, told Securities Daily that the recent break of the US dollar index below 100 has driven broad-based appreciation in non-dollar currencies, including the RMB. In addition, China's exports maintained strong growth in July, and the external trade environment remains stable, meaning the core drivers supporting recent RMB strength have not changed.

On August 18, the central parity rate of the RMB against the US dollar was set at 6.7905, 32 basis points lower than the prior session. Wind data showed that as of 5 p.m. on that day, the offshore and onshore RMB/USD rates peaked at 6.7419 and 6.7421, failing to extend the prior session's strong trend.

Regarding the downward adjustment in the RMB/USD central parity, Wang said the August 17 4:30 p.m. onshore RMB/USD closing rate was 6.7382, with the night-session close at 6.7417, giving back intraday appreciation. That closing result feeds into the central parity fixing the next day.

On the RMB exchange-rate outlook, Ming said the probability is high that the Federal Reserve keeps policy rates unchanged for the rest of this year. Against this backdrop, the US dollar index is expected to find support but is unlikely to keep surging, leaving manageable external pressure on the RMB. On the domestic side, economic fundamentals are stable, particularly with continued strong exports providing solid backing for the RMB. Meanwhile, the People's Bank of China's calibrated pace in deploying its exchange-rate-stability toolkit has strengthened RMB resilience. On balance, the RMB is likely to appreciate moderately within the year.

"The future RMB exchange rate will depend mainly on China's export trajectory and on factors affecting the US dollar index such as Federal Reserve policy adjustments," Wang said. He expects the RMB/USD rate is less likely to repeat the rapid first-half appreciation in the second half; instead, it will mostly trade in a two-way fluctuation pattern, with the full-year profile presenting a rise-then-stabilize pattern.