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the domestic rmb exchange rate once again regained the 7.1 integer mark.

as of 18:00 on september 18, the onshore usd/rmb exchange rate (cny) and the offshore usd/rmb exchange rate (cnh) hovered around 7.085 and 7.0872 respectively, both recovering the 7.1 integer mark during the trading session. during the entire mid-autumn festival holiday, the rmb exchange rate rose by more than 100 basis points.

behind this is the fact that expectations for a 50 basis point rate cut by the federal reserve in september suddenly increased during the mid-autumn festival holiday, pushing the rmb exchange rate to a "preemptive rise".

the latest u.s. interest rate futures trading conditions show that the number of open contracts for federal funds rate futures betting on the federal reserve's monetary policy this week has hit a record high. since this week, new interest rate futures contracts betting on the federal reserve's 50 basis point rate cut in september have accounted for one-third of the total in the past two trading days.

a foreign exchange trader at a hong kong bank pointed out to reporters that as expectations for a 50 basis point rate cut by the federal reserve in september increased sharply, on september 18, overseas hedge funds and asset management institutions rushed to buy up offshore renminbi and "wait for it to rise and then sell."

he reminded that the current foreign exchange market has a high trading atmosphere of "buy expectations and sell reality". if the fed cuts interest rates by 50 basis points at tomorrow's monetary policy meeting, it is possible that these overseas hedge funds and asset management institutions will quickly "take profits" on their profitable offshore rmb long positions; if the fed cuts interest rates by only 25 basis points, it may cause a large fluctuation in the rmb exchange rate.

"this has aroused the vigilance of some foreign trade companies. before the results of the federal reserve's monetary policy meeting came out on thursday, these companies had reduced the exchange rate risk exposure of their rmb positions - by buying short-term foreign exchange swaps to lock the rmb/usd exchange rate between 7.08 and 7.12." the hong kong bank foreign exchange trader emphasized.

expectations of a fed rate cut are growing, and the rmb exchange rate is rising in a “preemptive” manner

the above-mentioned foreign exchange trader at a hong kong bank also felt "unbelievable" about the sudden rise in expectations for a 50 basis point rate cut by the federal reserve, because recent us economic data has performed relatively well.

on tuesday, the u.s. department of commerce released the latest data showing that u.s. retail sales grew by 0.1% month-on-month in august, exceeding market expectations of -0.2%, indicating that u.s. economic growth is expected to remain highly resilient in the third quarter.

however, wall street investment institutions still have a "special liking" for the federal reserve's 50 basis point interest rate cut in september.

the foreign exchange trader at a hong kong bank believes that wall street is doing this because, first, they have discovered that the u.s. job market has cooled down, and more and more companies are having to reduce their workforce to cope with the weakening economic demand trend in a high-interest rate environment; second, they believe that if the federal reserve continues to maintain relatively high interest rates, the chances of the u.s. economy experiencing a "hard landing" after the third quarter will increase significantly.

the reporter found that wall street's expectation of the federal reserve's 50% interest rate cut was by no means just a "slogan-shouting" stage.

the chicago stock exchange (cme)'s federal reserve watch tool shows that wall street investment institutions currently expect the federal reserve to have a 66% chance of a 50 basis point rate cut in september, while the probability of a 25 basis point cut is only 34%.

correspondingly, in the us interest rate futures market linked to the secured overnight financing rate (sofr), there have been large transactions betting on the federal reserve to cut interest rates by 50 basis points in september. for example, during the trading session on monday, there was another interest rate futures transaction betting on the federal reserve to cut interest rates by 50 basis points in september, with a scale of tens of millions of dollars.

"this has significantly increased the popularity of buying the rmb exchange rate during the mid-autumn festival." the aforementioned hong kong bank foreign exchange trader told reporters. in the past, with the high expectation of the federal reserve's 25 basis point interest rate cut in september, coupled with the resonance of china's economic fundamentals and the central bank's intention to stabilize the exchange rate, overseas investment institutions generally believed that the rmb exchange rate would fluctuate between 7.1 and 7.15 at this stage. however, as the expectation of the federal reserve's 50 basis point interest rate cut in september suddenly heated up during the mid-autumn festival, overseas hedge funds and asset management institutions took the lead in buying up the offshore rmb, betting that the offshore rmb exchange rate would regain the 7.1 integer mark. some overseas hedge funds have even bought rmb call options expiring in october with an exercise price between 7.05 and 7.08.

in his opinion, one of the reasons why these overseas hedge funds and asset management institutions rushed to buy up offshore rmb is to "hedge" the risk of an unexpected decline in the us dollar index caused by the federal reserve's 50 basis point interest rate cut in september by buying up non-us currencies.

the reporter learned that compared with the previous fed's interest rate cuts, the strength of overseas capital buying the rmb exchange rate this time is relatively weak. the reasons are: first, even if the fed cuts interest rates by 50 basis points in september, its benchmark interest rate is still higher than that of most emerging market countries, which affects the flow of arbitrage capital; second, the strength of overseas quantitative investment funds buying rmb is not high, because the current china-us interest rate differential (the difference in 10-year us bond yields) is still maintained at -160 basis points, which is wider than the beginning of september, and has not been narrowed by the expectation of the fed's 50 basis point interest rate cut.

"the current decline in china's 10-year treasury bond yields has resulted in the failure to significantly narrow the inverted interest rate gap between china and the united states, which has affected the willingness of overseas quantitative investment funds to buy offshore renminbi," said the hong kong bank foreign exchange trader.

beware of the "buy expectations, sell reality" trading atmosphere that increases rmb exchange rate volatility

the reporter learned that whether the rmb exchange rate can completely regain the 7.1 integer mark depends on how much "dovish voice" the federal reserve releases after the september interest rate cut.

"at present, how strong the buying power of wall street investment institutions for non-us currencies such as the rmb in the future depends on whether the fed is willing to release a stronger dovish interest rate cut signal after the september rate cut." the aforementioned hong kong bank foreign exchange trader pointed out to reporters. wall street investment institutions will therefore judge whether the fed will cut interest rates by 125 basis points or 100 basis points this year. once they generally expect the fed to cut interest rates by 125 basis points this year (which means that the fed will cut interest rates by 50 basis points twice this year), it will largely drive wall street investment institutions to be optimistic about the rmb exchange rate regaining "7.1" and steadily moving towards the integer mark of "7".

the reporter noticed that the banking institutions currently participating in the quotation of the rmb exchange rate mid-point are quite "optimistic" about this.

on september 18, the central parity rate of the rmb was reported at 7.087, up 160 basis points from the previous trading day, setting the highest level since january 2.

the foreign exchange trader of a hong kong bank bluntly stated that compared with overseas hedge funds and asset management institutions that value the specific rmb exchange rate buying profit opportunities brought about by the rising expectations of the federal reserve's 50 basis point rate cut in september, banking institutions are more optimistic about the medium- and long-term appreciation prospects of the rmb exchange rate brought about by the federal reserve's continued rate cuts.

he believes that although the fed's interest rate cut cycle will help the rmb exchange rate valuation to rise steadily in the medium and long term, in the short term, the game of the fed's interest rate cut intensity (100 basis points or 125 basis points) will suddenly increase the volatility of the rmb exchange rate. the reason is that there is a high trading atmosphere of "buy expectations, sell reality" in the foreign exchange market. when market expectations are high, capital tends to buy up and raise the rmb exchange rate. once expectations are fulfilled or expectations are not met, these capitals will sell the profitable rmb positions in large quantities to take profits, resulting in greater exchange rate fluctuations.

"at present, this situation has appeared in the yen exchange rate. on september 16, as expectations of a 50 basis point interest rate cut by the federal reserve suddenly increased, the usd/jpy exchange rate fell below the 140 integer mark to 139.57. but when the market quickly realized that the yen exchange rate had risen beyond expectations, profit-taking suddenly emerged, causing the yen exchange rate to quickly fall back below 141," he pointed out.