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Economic Observer reporter Hu Yanming"The exchange rate rose from 7.24 to 7.18, and today it is around 7.14. I did nothing and lost nearly 10,000 yuan." On August 5, Mr. Zhao, who is engaged in small commodity export business in Zhejiang, told the Economic Observer that he regretted not converting the currency earlier.

In late July, Mr. Zhao received a payment of 100,000 US dollars for goods. Before he had time to convert the currency into RMB at the bank, the RMB exchange rate against the US dollar suddenly appreciated, and the amount of RMB he could exchange dropped from 724,000 yuan to around 714,000 yuan.

In this round of global financial market fluctuations, the RMB exchange rate has risen sharply. From July 24 to August 5, the onshore RMB exchange rate against the US dollar fell from 7.2776 to 7.1385, returning to the level at the beginning of the year; the offshore RMB exchange rate against the US dollar fell from 7.2916 to 7.1375.

By August 6, the appreciation momentum of the RMB exchange rate had eased.

Strong rebound

Since 2024, the RMB exchange rate against the US dollar has shown a weak trend. However, since July 24, the RMB exchange rate has appreciated significantly. On July 25, the onshore RMB exchange rate against the US dollar and the offshore RMB exchange rate against the US dollar were 7.2360 and 7.2403 respectively; on August 2, the onshore RMB exchange rate against the US dollar rose above the 7.20 mark.

On August 5, the RMB exchange rate continued to soar, with the onshore RMB exchange rate against the US dollar approaching the 7.11 mark and the offshore RMB exchange rate once rising above the 7.10 mark.

In just a few trading days, the RMB exchange rate almost "recovered lost ground" and returned to the level at the beginning of 2024. For the whole year of 2023, the average RMB exchange rate was 7.0467 RMB per U.S. dollar, a depreciation of 4.5% from 2022.

This round of RMB "sharp rise" also caught many export businesses off guard. Mr. Zhao said that when the bank's exchange rate was 7.24, he wanted to wait because the US dollar has always been strong and sometimes it can be exchanged for 7.27 RMB, but he didn't expect the price to drop as he waited.

Mr. Zhao had to bear the exchange loss because he needed funds to pay downstream suppliers. Small merchants like Mr. Zhao who are engaged in exports and have relatively low profit margins are more vulnerable to foreign exchange fluctuations. Under drastic fluctuations in exchange rates, foreign exchange losses may even offset product profits.

Multiple factors drive

Many analysts pointed out that the combined effect of multiple factors has driven the sharp rise in the RMB exchange rate.

Bank of ChinaWang Youxin, a senior researcher at the institute, said that as one of the financial markets most sensitive to price changes, the rapid changes in the RMB exchange rate fully demonstrate that the current global economic and financial markets are facing an important turning point.

Wang Youxin believes that from technical corrections to the decline of the US dollar index, to the strong appreciation of the yen, and changes in the global economic, financial and monetary policy environment, the combination of many factors has had a positive impact on the RMB exchange rate, supporting the strong rebound of the RMB exchange rate.

Wang Youxin said that first, there is an inherent driving force to return to the equilibrium value at the technical level. Second, the concerns about the US economic recession and the expectation of the Fed's interest rate cut have heated up again, and the US dollar index has quickly fallen from its high point. Third, the sharp appreciation of the Japanese yen and the reversal of the Japan-US "carry trade" have improved international investors' preference for Asian emerging market currencies such as the RMB. Fourth, the domestic policy dividends have continued to be released, which has significantly boosted the confidence and expectations of market players in the continued recovery of my country's economy.

Zhong Zhengsheng, chief economist of Ping An Securities, pointed out that there are three macroeconomic foundations for the sharp appreciation of the RMB: first, the US dollar index fell, but the RMB exchange rate did not rise accordingly, accumulating the potential for "catch-up"; second, the domestic stable growth policy was strengthened; third, the trade surplus hit a new high. In addition, the appreciation of the yen was one of the triggering factors for the sharp appreciation of the RMB.

Regarding the relationship between the fluctuation of the RMB exchange rate and the trend of the Japanese yen, Zhang Yu, chief macro analyst at Huachuang Securities, said that although the linkage between the RMB and the Japanese yen, both relatively low-interest currencies, has increased significantly since the Fed's rapid rate hike, the RMB cannot fully apply the carry trade logic. The fundamental reason is that the RMB financial account is still open to a limited extent, and the amount of US dollar assets purchased with RMB as a financing currency is actually limited.

Future Trends

As of 16:30 on August 6, the onshore RMB exchange rate against the US dollar was 7.1469, down 84 basis points from the official closing price of the previous trading day and down 74 basis points from the closing price of the previous night session. On August 6, the RMB central parity rate against the US dollar was 7.1318, up 27 basis points from the previous trading day.

A foreign exchange trader told the Economic Observer that he is currently focusing on two psychological barriers, one is the 7.0 integer barrier, and the other is the previous high of 7.4. "Now the main focus is whether it can break 7.1. At present, it is still maintaining normal operations."

Regarding the subsequent trend of the RMB exchange rate, Zhang Yu believes that the balance of foreign exchange supply and demand in actual transactions is reflected in the surplus of foreign exchange settlement and sales = trade surplus × net exchange rate. The current strong exports mean that companies can earn foreign exchange, and the trade surplus forms a "safety cushion" for the exchange rate. Whether it can trend upward depends on whether the net exchange rate changes.

From the perspective of the macro environment, Wang Youxin believes that the RMB will continue to rise in the coming months. The RMB exchange rate is expected to continue to rise steadily under the support of multiple favorable factors such as the continued stable improvement of economic fundamentals, improved market expectations, changes in the international environment and increased cross-border capital flows.

Huaan SecuritiesThe strategy team pointed out in the research report that in the short term, the strengthening of the Fed's interest rate cut expectations has led to a decline in US bond yields, easing the pressure on the depreciation of the RMB; in the medium term, the factors of the previous depreciation of the RMB have yet to be reversed, and it is expected to enter the appreciation channel after the economic recovery accelerates. Whether the GDP growth rate in the second half of the year can rebound to more than 5% is the key to determining the medium-term exchange rate trend. The RMB exchange rate needs more macroeconomic data support to enter the medium-term appreciation channel.