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Author: Xiao Yu (Associate Researcher, Institute of Asia-Pacific and Global Strategy, Chinese Academy of Social Sciences)

Editor: Lu Yueling

Since the beginning of this year, the weak RMB against the US dollar has been quietly changing. On August 19, the RMB exchange rate once again showed its strong performance on July 25. On that day, the onshore RMB against the US dollar closed at 7.1383, up 297 basis points from the previous trading day. As of the close of last Friday, the CFETS, BIS and SDR RMB exchange rate indices all fell month-on-month, and the USD/RMB exchange rate quickly reached its lowest point since the beginning of this year.

USDCNH latest quote as of August 21st morning

From the perspective of the external market, the short-term trend of the dollar's weakening is difficult to reverse. In the past week, the dollar has shown signs of weakness against major global currencies except for its appreciation against the yen. Among them, the euro rose by 0.657% against the dollar and the pound rose by 1.105% against the dollar.

As the exchange rate of sovereign currencies of different countries, the main factor affecting a country's exchange rate is, in addition to the level of economic development at the macro level, more restricted by micro factors such as cross-border capital flows. This is also the basic principle of exchange rate determinism. For example, if a country's economic growth is stable and promising, then the purchasing power of its currency is strong, people are willing to hold the country's currency, and the currency will appreciate. At the micro level, if a country's interest rate is higher than that of other countries, arbitrage funds will flow from countries with low interest rates to countries with high interest rates, thereby increasing the demand for the currency of the high-interest country, which in turn triggers the appreciation of the currency of the high-interest country.