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interface news reporter | he liuying

jiemian news editor | jiang yiman

with the federal reserve’s interest rate cut “boot” landing, the renminbi has seen a strong appreciation.

on september 19, the rmb spot exchange rate against the us dollar was 7.0660, up 233 basis points from the previous trading day, setting a new high since may 26, 2023. on the 20th, the rmb spot exchange rate against the us dollar continued to rise to 7.0552, up 108 basis points, setting a new high.

looking ahead to the market,great wall securitieschief economist wang yi told jiemian news that with the fed's rate cuts and the start of a global rate cut cycle, the us dollar will usually fall, and the pressure on the rmb exchange rate to fall will be reduced. however, if risks strengthen and the dollar's safe-haven properties increase, the dollar may also strengthen again.

in the last round of us interest rate hikes, the attractiveness of us dollar assets continued to rise, and us dollar asset allocation was hotly sought after by investors. with the opening of the interest rate cut channel, will this wave of market enthusiasm fade?

huabao securities believes that during the fed's rate cuts, the interest income from investing in u.s. bonds will continue to weaken, and the capital gains income from rising u.s. bond prices will continue to be positive. u.s. dollar wealth management products still have allocation value, but the returns of future u.s. dollar wealth management products and the performance benchmarks of new products may decline, which may affect the pace of issuing u.s. dollar wealth management products by some banks or wealth management institutions. at the same time, during the period when the interest rate gap between china and the united states narrows, investing in u.s. dollar wealth management may face some exchange losses.

the rmb continues to strengthen

on september 18, local time, the u.s. federal reserve announced that it would lower the target range of the federal funds rate by 50 basis points to a level between 4.75% and 5%. this is the first interest rate cut by the fed since march 2020, and it also marks the beginning of a new round of easing cycle of u.s. monetary policy.

the shoe dropped, and the rmb rose accordingly. on september 19, the rmb spot exchange rate against the us dollar closed at 7.066, up 233 basis points from the previous day's closing price, setting a new high since may 26, 2023. the offshore rmb also strengthened against the us dollar, rising 242 basis points on the day and closing at 7.0710.

on september 20, the rmb continued to strengthen. the spot exchange rate of rmb against the us dollar was 7.0552, up 108 points from the previous trading day. in the offshore market, the rmb against the us dollar once broke through the 7.04 mark, reaching a high of 7.0388.

in fact, as the federal reserve's interest rate cut signals became increasingly clear, the renminbi has entered an appreciation channel against the us dollar since august.

"from a historical perspective, the renminbi is more likely to appreciate against the u.s. dollar during a cycle of u.s. interest rate cuts. after this rate cut by the federal reserve, it is expected that the pressure on the renminbi exchange rate will be further alleviated, and the renminbi may appreciate against the u.s. dollar." wang yi, chief economist of great wall securities, said in an interview with interface news reporters.

gf securitiessenior macro analyst zhong linnan also believes that for the global foreign exchange market, the fact that the united states is on the left side of a rate cut cycle is a major logic, and transactions that are bearish on the dollar and bullish on non-us currencies are trend-following.

for the future market, the extent of the fed’s interest rate cut will be an important influencing factor.

the fed’s 50 basis point rate cut exceeded expectations, and the market reacted strongly. fed chairman powell said at a press conference after the interest rate meeting that the july meeting did have the potential to start a rate cut, but the fed chose to wait patiently for inflationary pressure to ease further, so now it has more confidence to cut interest rates by 50 basis points. but powell also emphasized that a 50 basis point rate cut does not mean that the path of future rate cuts will be more radical.

the dot plot of the interest rate hike path in the fed's economic forecast summary shows that fed officials predict that the median federal funds rate will fall to 4.4% by the end of 2024 and to 3.4% by the end of 2025, suggesting that there will be multiple rate cuts in the future.

hu jie, professor at the shanghai advanced institute of finance, shanghai jiao tong university and former senior economist of the federal reserve, told interface news reporters that the federal reserve will enter a state of continuous interest rate cuts, at least for a year, usually around two years. according to the federal reserve's expectations, it is expected to fall to around 3.5% by the end of next year, which is about 200 basis points from the previous 5.5%.

cmb international's research report also mentioned that the federal reserve is expected to cut interest rates twice this year, totaling 50 basis points, and four times next year, totaling 100 basis points.

hu jie analyzed that the rmb has been depreciating due to the pressure difference between the high interest rate of the us dollar and the low interest rate of the rmb. this pressure difference will become smaller and smaller in the future. "the interest rate decline that has been achieved plus the expectation of future interest rate decline are obvious technical factors that are conducive to the appreciation of the rmb. it is expected that the rmb will continue to strengthen for some time, and now is just the beginning."

in wang yi's view, the us dollar usually falls with the interest rate cut cycle, but if the risk factors strengthen and the safe-haven property of the us dollar increases, the us dollar may strengthen again. at the same time, the recent rmb exchange rate is also affected by factors such as the yen interest rate hike, the strength of domestic fiscal stimulus, and the degree of monetary easing. other external factors include the us election, geopolitical risks,american financedue to the potential systemic risks in the market, it is unlikely that the rmb exchange rate will directly enter the appreciation channel in the future.

hu jie added that the inflow and outflow of foreign exchange is also an important influencing factor. "at present, china's foreign trade is still in surplus. as the economic situation changes in the future, whether the surplus will become smaller or whether other situations will arise, i think we need to continue to observe."

the latest data from the state administration of foreign exchange shows that in july 2024, my country's international balance of payments imports and exports of goods and services amounted to 4.2352 trillion yuan, a year-on-year increase of 12%, with a surplus of 293.3 billion yuan, a monthly high since 2023.

is us dollar asset allocation still attractive?

in the last round of the fed's rate hikes, the us dollar continued to strengthen, and us dollar asset allocation was favored by investors. now that the rate cut cycle has begun, will this wave of market enthusiasm cool down?

in hu jie's view, there is no expectation of cooling down. "in the past cycle, the upward trend of us interest rates was the main attraction. next, the interest rate cut will have an impact, but more importantly, the increase in us dollar liquidity is actually beneficial to almost all financial targets denominated in us dollars. it is expected that us dollar assets will still have market appeal."

after the fed’s interest rate cut, the u.s. stock market ushered in a wave of positive market conditions. on september 19, the dow jones index rose by 1.26%.nasdaq indexthe dow jones industrial average rose 2.51%, while the s&p 500 rose 1.7%.

wang yi believes that with loose liquidity and the lack of obvious recession in the us economy, the probability of us stocks rising is relatively high, and pro-cyclical styles may benefit more from this "preventive rate cut", that is, investors view this rate cut as a preventive measure rather than a response to economic recession.

wang xinjie, chief investment strategist of standard chartered china wealth management, mentioned in a report released on the 20th that the fed's interest rate cut may help the us economy achieve a soft landing. in this environment, it is still attractive to maintain a broadly diversified allocation and overweight the us stock market, especially us technology stocks.

as for u.s. bonds, on september 19, the yield on the 2-year u.s. treasury bond was 3.59%, down slightly from 3.61% on the previous trading day. the yield on the 10-year u.s. treasury bond was 3.73%, up from 3.7% on the previous trading day. wang yi believes that in the future, the decline in the short-term yield of u.s. treasury bonds may be more obvious than that of the long-term yield.

gold prices continued to rise. on september 19, london gold spot rose 1.08% to 2586 points. on the 20th, it continued to rise, reaching 2618 points as of press time.

wang yi believes that the logic of gold's anti-inflation and safe-haven properties has not changed, and the gold price is expected to fluctuate and be stronger, but the room for substantial increases is relatively limited.

it is worth mentioning that in the past interest rate hike cycle, the us dollar deposit interest rates of many banks have been rising all the way, reaching 5%. when the interest rate cut is about to take effect, some banks have begun to lower their us dollar deposit interest rates. for example, in mid-august,bank of jiangsuthe annual interest rate for u.s. dollar deposits with a minimum deposit of $10,000 and a term of one month will be reduced from 5.05% to 4.95%, a decrease of 10 basis points.

dong ximiao, chief researcher of ccb, reminded that for some time, due to the high interest rate of us dollar deposits, us dollar deposits and wealth management products linked to us dollar interest rates have been popular among investors. as the united states enters a cycle of interest rate cuts, commercial banks will lower the interest rate of us dollar deposits, and the investment value of us dollar wealth management products may decline accordingly. this is what investors need to pay attention to.