After a Fresh Multi-Year High, How to Read the RMB's Recent Trajectory

Xinhua Finance, Beijing, October 26 — The RMB has recently shown a degree of resilience even as the dollar index has stayed broadly firm and volatility in global foreign exchange markets has picked up. The onshore and offshore RMB rates have each recovered the 6.68 mark, reaching relatively high levels not seen in nearly four years, while the central parity has been strengthened consecutively to levels last seen in early 2023.

The recent move has been driven by a combination of factors, including export performance, corporate demand for FX conversion and macroeconomic policy expectations, among other internal and external variables. From a market mechanism perspective, the exchange rate is shaped by macroeconomic fundamentals and overall exhibits two-way fluctuation. The pace of future moves will depend mainly on the combined influence of export growth, the direction of the dollar index, the Federal Reserve's policy path and the central bank's macro-prudential management.

Three phases in the RMB's recent trajectory

The recent path of the RMB can be summarised in three stages.

Stage one: stabilisation and lift-off. At the start of the third quarter, the RMB moved steadily within a particular range, with onshore and offshore rates holding relatively stable and the spread between them kept in a narrow band — a reflection of stable trading expectations.

Stage two: divergence and repricing. As the Federal Reserve adjusted monetary policy and US Treasury yields moved, the dollar index strengthened in phases and non-dollar currencies came under broad pressure, with the RMB spot rate pulling back modestly. Over the same period, however, central parity appreciation actually accelerated, with cumulative strengthening clearly larger than in previous months. The market widely read this divergence — a weaker spot rate alongside a stronger fixing — as a sign that this round of appreciation is not a tailwind from passive dollar weakness but has independent internal support.

Stage three: consolidation at highs. Entering the fourth quarter, with rising volatility in global FX markets and a periodically firm dollar index, the RMB has held a two-way, consolidating pattern around key levels, with the pace of appreciation slowing and overall trading range-bound.

Over a longer horizon, since 2025 the RMB has broadly maintained two-way floating and has traded within a reasonable range against both major currencies and a basket of currencies. The current level sits in the upper-middle part of its historical wide range, showing notable resilience and market-driven flexibility.

What signal did the central bank's policy stance send?

On October 8, the People's Bank of China published its Policy Stance on the RMB Exchange Rate, setting out the core orientation of exchange rate policy. The document stated that the market should play a decisive role in exchange rate formation, that China has no need and no intention to gain a trade competitive advantage through currency depreciation, and that it never engages in competitive devaluation.

The central bank stressed that analysing exchange rate changes requires considering multiple dimensions: not only goods trade but also services trade; not only the current account but also the financial account; and not only economic fundamentals but also expectations.

Market analysts broadly see three signals in the statement. First, a reaffirmation of the established framework: the market plays a decisive role in exchange rate formation, macro-prudential management aims to prevent sharp short-term swings and smooth one-sided expectations, and the focus is on pro-cyclical overshooting risk. Policy is meant to maintain market order, not to set or change the overall direction of the exchange rate.

Second, a response to external concerns: export competitiveness stems from comprehensive industrial advantages rather than the exchange rate. The characteristics of global trade and current accounts are closely tied to the international division of labour and macroeconomic structure and need to be assessed objectively across multiple dimensions.

Third, a call for a structural response: expanding domestic demand, improving the business environment and deepening high-level opening-up should promote stable macroeconomic performance from the perspective of structural adjustment and medium- to long-term development.

On market discussion of exchange rate valuation and the trade surplus, the analysis noted that the exchange rate is affected by multiple variables including the current account, capital flows and the macroeconomy. In market operation, the policy orientation remains one of respecting market supply and demand and keeping the RMB basically stable at a reasonable and balanced level.

Four variables to watch

In a complex and fast-changing macro environment, the exchange rate is shaped by an interplay of internal and external factors. From the perspective of cross-border capital and market mechanisms, the China-US interest rate differential, capital flow patterns and changes in the dollar index form the main backdrop of the external environment. Exchange rate moves also directly affect exporters' profits and fundamentals, while the seasonal pattern of corporate FX conversion has some bearing on short-term FX supply and demand.

Analysts say that, taking macro fundamentals and market mechanisms together, four core variables should be tracked closely.

First, export growth and trade structure: trends in export data, the share of high value-added products and the support that corporate order books provide to the current account.

Second, the dollar index and the external environment: the degree of divergence in US data on employment, consumption and inflation, and the knock-on effects of global FX volatility on the external exchange rate environment.

Third, the Federal Reserve's policy path: how shifts in rate expectations, the direction of the policy rate and changes in the shape of the US Treasury yield curve affect cross-border capital flows.

Fourth, macro-prudential policy and market tools: the rhythm with which the central bank uses the counter-cyclical factor, cross-border capital flow management and offshore market liquidity management, and the policy balance between market supply and demand and guarding against one-sided pro-cyclical risk.

(Source: Xinhua Finance)