All Three RMB Exchange Rate Indexes Ease as the Yuan Stays Firm Against the Dollar

Xinhua Finance, Shanghai, October 26 (Ge Jiaming) — Data from the China Foreign Exchange Trade System show that in the week of October 23 all three RMB exchange rate indexes fell. The CFETS RMB index stood at 103.41, down 0.29 week on week and the lowest since January 2026. The BIS currency basket RMB index was 111.02, down 0.16 and the lowest since February 2026, while the SDR currency basket RMB index was 98.56, down 0.07 and also the lowest since February 2026.

In the week of October 19 to 23, the dollar index moved in a narrow range and edged down 0.03% for the week. Major non-dollar currencies diverged: the euro fell about 0.33% against the dollar, while sterling and the Australian dollar rose about 0.33% and 1.28% respectively; the dollar fell about 0.72% against the yen, with the Japanese currency relatively firm.

The RMB continued to appreciate modestly against the dollar. On October 23, the onshore RMB closed at 6.6711 at 16:30, up 157 pips from the previous week's close and about 0.24% stronger over the week; the offshore RMB gained about 0.25% over the same period and ended Friday near 6.6691.

Several analysts attribute the RMB's firm tone to export resilience, a recovery in corporate willingness to convert foreign exchange and stable market expectations. The path ahead depends on whether FX conversion demand continues to be released, as well as on changes in dollar rate expectations and domestic policies aimed at keeping the exchange rate stable.

On FX supply and demand, data from the State Administration of Foreign Exchange show that banks bought US$294.2 billion and sold US$238.0 billion of foreign exchange in September, a settlement-and-sales surplus of US$56.2 billion; the cumulative surplus for the first three quarters was US$394.1 billion. The sustained surplus has supported the RMB.

That support comes both from foreign exchange income under trade and from the rhythm of corporate conversion. Qin Tai, an analyst at Great Wall Securities, believes the rebound in the settlement ratio since the second quarter shows exporters may be accelerating conversion on changed exchange rate expectations. Companies selling foreign exchange and buying RMB has further converted the trade surplus into RMB demand in the FX market, an important mechanism driving appreciation. Research by Li Liuyang, head of FX research at CICC, also shows that the surplus in bank FX settlement and sales on behalf of clients widened to US$62.9 billion in September from US$51.9 billion in August, with the settlement ratio rising to 65.3%, up 3.8 percentage points from the previous month. In his view, large net inflows under goods trade combined with recovering corporate conversion appetite have left FX market supply relatively ample, an important support for the RMB's firm-but-stable tone.

The external environment has also offered some support. CICC believes last week's decline in US Treasury yields weakened the dollar's rate appeal, and concerns about financing and returns at artificial intelligence-related companies have prompted closer scrutiny of US growth prospects. Although energy prices and inflation pressures still support the dollar, the momentum for further strength has weakened.

Looking ahead, the supply and demand basis for a firm RMB remains in place, but the room for and pace of appreciation are still uncertain. Li Liuyang expects export resilience and relatively ample FX supply to keep providing support, with the RMB likely to keep moving both ways.

On the scope for further appreciation, Caitong Securities analyst Sui Xiuping estimated based on historical cycles. He noted that across the past five RMB appreciation and depreciation cycles, the average correlation between the dollar index and USD/CNY was about 0.69. Extrapolating scenarios from historical correlation and the scale of dollar moves, the lower bound of the USD/CNY range in this round may be around 6.56. That estimate relies on specific assumptions and still needs to be checked against subsequent dollar moves and domestic and external fundamentals.

Policy also plays a role in moderating the pace of appreciation. Sui Xiuping believes the central bank prefers to let the market play a decisive role in exchange rate formation while smoothing volatility through central parity adjustments and expectation guidance. CICC noted that last week the RMB central parity was strengthened by a cumulative 40 pips against the dollar, less than the move in the spot rate. In its view, this shows that exchange rate policy is aimed at smoothing the pace of appreciation and stabilising market expectations.

In the near term, this week's policy meetings at the Federal Reserve, the Bank of Japan and the European Central Bank will provide fresh guidance for major currencies. If US inflation and wage data prompt the market to raise rate expectations, the dollar may rebound and the RMB could face periodic disturbance; if the dollar's rate support continues to fade, relatively ample conversion supply should help the RMB stay firm.

The impact of a firm RMB will also extend to domestic monetary policy and the bond market. Caitong Securities believes this round of appreciation may have passed its halfway point, but the release of conversion demand and expectations of monetary easing may still support lower bond yields. A stronger RMB helps ease depreciation pressure and creates conditions for domestic monetary policy to maintain a supportive stance, though whether rate cuts materialise still depends on the domestic economy and prices.

For companies, a firm exchange rate does not mean a one-way appreciation trend has been established. They should still settle foreign exchange reasonably in line with actual payment and receipt schedules and manage FX exposure to limit the impact of exchange rate volatility on operating profit.

(Source: Xinhua Finance)