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as the fed is getting closer to cutting interest rates, the us dollar index continued its recent trend this week and continued to fall on monday, which also led to gold hitting a new record high and the continued appreciation of the rmb. with the september interest rate cut set to be a foregone conclusion, all kinds of global assets are expected to move further and further along the trend.

the dollar fell, while the renminbi and gold rose 

on september 16, as the federal reserve was about to cut interest rates, the us dollar index continued its trend and continued to fall. wind market data showed thatthe u.s. dollar index opened lower and continued to fall on monday, with several sharp declines during the session and hitting a new low in nearly a week. it closed at 100.6625, not far from this year's lowest point of 100.5113.as of 5:00 am beijing time on september 17, although there was a rebound after the opening on tuesday, it rose again and fell back. this week, the us dollar is expected to continue to move steadily downward along the trend, and it is likely to fall below this year's lowest point, reaching a new low in more than a year.

the dollar weakened and gold strengthened, and the seesaw effect between the two was obvious. wind market showed that on september 16, the international gold price hit a new record high as expected. comex gold once surged to $2,617.4 during the session, and london gold rose to $2,589.68, just one step away from breaking through $2,600.since the beginning of this year, the two major varieties have seen cumulative increases of 25.98% and 25.19% respectively, making them attractive investment products.

as for the rmb, the usd/cny onshore market was closed during the mid-autumn festival, but the usd/cny offshore market continued to fall. wind market data showed thaton monday, the offshore rmb broke through 7.1 during intraday trading, not far from the nearly one-year high of 7.0709. as of the close, the offshore rmb continued to appreciate, at 7.0969.the offshore rmb continued to rise at the opening on tuesday. once the fed's interest rate cut is implemented and the us dollar continues to fall, the rmb's volatile upward trend is expected to continue, and global asset allocation will undergo major changes in the later period.

foreign capital has continued to increase its investment in rmb assets

in late august, data released by the society for worldwide interbank financial telecommunication (swift) showed that in july this year, the value share of rmb in international payments rose to 4.74%, a record high since data was recorded. market participants believe thatas the interest rate gap between china and the united states narrows, the return advantage of rmb assets over us dollar assets is gradually becoming apparent.this includes not only the bond market, but also other rmb-denominated financial assets. the higher rate of return has attracted a large amount of international capital to flow into the chinese market, further supporting the value of the rmb.

it is reported that bond spread trading is mainly based on the sum of the potential appreciation returns of the rmb in the future and the return rate of short-term bonds held to maturity.it is expected to exceed the yield of u.s. treasury bonds in the same period, prompting foreign capital to increase its holdings of domestic one-year and other short-term government bonds and interbank certificates of deposit.

yin ruizhe, an analyst at guotou securities, pointed out in a report that in this round of bond interest rate spread trading, the main arbitrage investment target of overseas capital is interbank certificates of deposit.since november last year, the total scale of interbank certificates of deposit purchased by overseas capital has reached about 800 billion yuan, with an average month-end purchase volume of 88.9 billion yuan.as of the end of july, the scale of interbank certificates of deposit held by overseas capital reached 1,090.9 billion yuan, accounting for about 6.16%. in addition, zhao zhixuan, a strategist at bloomberg asia, also said that this year, overseas investors have significantly increased their purchases of interbank certificates of deposit, and their holdings have risen to 6.15% at the end of july, the highest level since 2015, slightly lower than the holdings of chinese government bonds by overseas investors (7.16%).

rmb appreciation has a positive impact on a-shares

according to historical data, the appreciation of rmb has a positive effect on the stock market. wind data statistics show thatduring the two recent appreciation periods of the rmb, most a-share sectors performed well.during the appreciation period from may 29, 2020 to march 1, 2022, a-shares were in an upward trend, and the top five industries with the highest growth rates all rose by more than 30%, which was very popular. they were materials, energy, industry, utilities, and daily consumption, with the interval growth rates being 89.4%, 75%, 52%, 45.9%, and 32.9%, respectively.

during the second round of rmb appreciation from november 4, 2022 to january 16, 2023, consumer, financial and real estate stocks led the gains. the top five industries in terms of growth were daily consumption, telecommunications services, finance, real estate and discretionary consumption, with growth of 24.5%, 20.8%, 19.5%, 17.9% and 10.6% respectively.

the driving force and impact of further appreciation of rmb

song xuetao, chief macro researcher at tianfeng securities research institute, said that there is a possibility of further appreciation of the rmb exchange rate at present.

judging from the reasons for the appreciation of the rmb, the weakening of the us dollar is the main driving factor.the current trend of the dollar's depreciation has not changed. the fed's interest rate cut expectations and the volatility of the us stock market may exacerbate the dollar's weakness. the adjustment of the us stock market's second quarter report may be just the beginning. silicon valley and wall street have already had differences, and the contradictions may intensify and cause greater volatility in the next earnings season. at the same time, political uncertainty is also posing a challenge to the us dollar index. the us dollar index is under pressure, which may bring about the possibility of rmb appreciation.

the appreciation of the rmb is also related to the internal environment.the reform measures of factor marketization will help reduce the long-term risks in the economic transformation process and relieve the pressure of rmb exchange rate deceleration in the short term. in addition, the huge difference between china's trade surplus and foreign exchange surplus reflects the phenomenon of "hiding foreign exchange among the people", which is also a potential driving force for the appreciation of rmb in the future.

china's exports have performed strongly this year, with a record trade surplus, but the high trade surplus is not reflected in foreign exchange reserves, indicating that trading companies have not settled their foreign exchange in time in pursuit of dollar appreciation and higher dollar deposit rates. macquarie group estimates that chinese exporters and multinational companies have accumulated more than $500 billion in dollar assets since 2022. once expectations of rmb appreciation increase and the exchange rate hits a key point such as 7, companies may convert dollars into rmb to avoid exchange losses, thereby accelerating the appreciation of the rmb.the rmb exchange rate is expected to break through 7 and even reach the common fluctuation range of 6.9.

from the perspective of the impact of appreciation expectations,in terms of monetary policy, the central bank may continue to cut interest rates after the appreciation of the rmb.the central bank has previously lowered the interest rates of omo (open market operations), lpr (loan market quotation) and mlf (medium-term lending facility), sending a clear signal to the market. at the same time, the central bank may control the shape of the yield curve in various ways to create conditions for a smooth interest rate cut.

against the backdrop of monetary easing, fiscal policy will also be more proactive.in the past, there was a certain degree of asynchrony between monetary policy and fiscal policy, partly because the exchange rate could not withstand the pressure of depreciation. when the pressure of exchange rate depreciation disappears, the central bank can purchase government bonds to increase market liquidity, and the fiscal department can also speed up the pace of bond issuance and policy implementation.

a more proactive fiscal policy means, on the one hand, that the use of committed funds will be accelerated, and on the other hand, that investment in manufacturing upgrades and new infrastructure will be increased. at the same time, a proactive fiscal policy can also fill the fiscal gap through central leverage or quasi-fiscal tools to provide support for economic development.