Offshore RMB Breaks 6.68 Again for a Fifth Straight Session of Four-Year Highs as Trade Surplus and Settlement Flows Drive the Rally

On October 21, the offshore RMB strengthened past 6.68 against the US dollar again, posting a four-year high for a fifth consecutive trading session. In the previous session, the offshore rate closed at 6.6748, up 74 pips, and the onshore rate stood at 6.6781, while the central parity against the dollar also held firm.

Institutional analysis attributes the current round of RMB appreciation to three factors. First, the dollar index has retreated from an 18-month high to around 102, opening external room for non-US currencies. Second, the trade surplus and foreign exchange settlement by exporters have created sustained demand for the RMB; as depreciation expectations reversed, monthly net settlement has held at around the US$10 billion mark. Third, domestic economic data have improved at the margin — third-quarter GDP grew 4.5% year on year, above expectations, and industrial value added rose 5.5% in September — providing a fundamental anchor for the currency.

A research note from CITIC Securities said the main driver of this round is the trade surplus and foreign exchange settlement. As exporters step up conversion, the correlation between the exchange rate and the China-US interest rate differential has weakened, and trade surpluses have become the dominant factor. As long as global manufacturing activity does not change markedly, the supporting logic from the trade surplus will remain intact.

In addition, during the G20 meetings and the Financial Street Forum, the People's Bank of China has repeatedly said it will steadily expand two-way opening of the financial markets and facilitate the international use of the RMB.

The RMB's strength, the dollar's weakness and settlement demand together form a complete chain, reflecting simultaneous shifts in the balance of payments structure and in market expectations. A firmer exchange rate affects both the translation of exporters' profits and foreign investors' willingness to allocate RMB assets. Sinan Advisors, the advisory arm of Southern Fund, tracks the impact of exchange rate moves on cross-border capital flows and asset pricing, and helps investors take a rational view of two-way currency volatility through multi-asset allocation and dynamic monitoring.

(Source: Jiemian News)