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li lei/illustration

ran xuedong

on september 20, the federal reserve announced an unexpected 50 basis point rate cut. the offshore rmb/usd exchange rate rose by more than 300 points during the day, breaking through 7.04 and reaching a high of 7.0387. the onshore rmb/usd exchange rate rose by more than 200 points, closing at 7.0416. this is the highest point of the rmb exchange rate since may 2023.

on that day, the rmb exchange rate showed a unilateral upward trend, both onshore and offshore rmb. the market was very crowded with transactions of selling us dollars and taking rmb.

the best logic to explain this situation is that under the premise that the us dollar starts a new round of interest rate cuts, the us dollar exchange rate will continue to be weak, causing exporters and financial institutions that had previously hoarded us dollars to begin to panic and convert foreign exchange, and chinese exporters began to increase their efforts to sell us dollars.

since august this year, companies' efforts to increase foreign exchange settlement have been supported by official data.

recently, the state administration of foreign exchange announced the data on bank foreign exchange settlement and sales and bank foreign-related receipts and payments on behalf of customers in august 2024. in august, the cross-border receipts and payments surplus of non-bank sectors such as enterprises and individuals was us$15.3 billion; at the same time, the pace of foreign exchange purchases by domestic entities has slowed down, the demand for foreign exchange settlement has increased steadily, and the difference in bank foreign exchange settlement and sales has tended to be balanced.

the relevant person in charge of the state administration of foreign exchange said that my country's foreign trade development trend continued to improve. in august, the net inflow of cross-border funds under the goods trade increased by 11% month-on-month; foreign institutions continued to increase their net holdings of domestic bonds, and the willingness of foreign capital to allocate rmb assets remained stable. in addition, the dividends and dividends of foreign-invested enterprises fell seasonally, and the cross-border financing of related enterprises tended to stabilize.

according to the specific data, in august 2024, banks settled us$190.2 billion and sold us$191.4 billion in us dollars. from january to august 2024, banks settled us$1,438.5 billion and sold us$1,608 billion in total. in august, banks had a surplus of us$1.2 billion in foreign exchange settlement, but in the first eight months, foreign exchange sales were greater than settlements. in other words, in the first six months before august, my country's foreign exchange receipts and payments were in a large deficit, but in august this year, this trend began to reverse, and foreign exchange settlements increased on a large scale.

in terms of us dollars, in august 2024, banks' foreign-related income on behalf of customers was us$598 billion, and their foreign payments were us$582.6 billion. from january to august 2024, banks' cumulative foreign-related income on behalf of customers was us$462.88 billion, and their cumulative foreign payments were us$468.62 billion. the above data also show that in august, enterprises and individuals were very willing to settle foreign exchange.

previously, according to domestic institutions, since the inversion of us and chinese interest rates in april 2022, exporters have accumulated about 420 billion us dollars in pending foreign exchange settlement. according to the trading in august, it is estimated that the pending foreign exchange settlement will be about 100 billion us dollars per month. of course, pending foreign exchange settlement is only a possible space for foreign exchange settlement. whether this space can be fully utilized depends mainly on the trend of the us dollar index, and the most critical thing is the direction of the federal reserve's monetary policy.

how much interest rate difference can these funds to be converted into rmb earn? according to the calculation of a professional institution, the exchange rate at the end of 2022 is 6.91. if a company has a sum of us dollars at this time, then by the end of 2023, the company's foreign exchange cost will drop to 6.67; by the third quarter of 2024, the foreign exchange cost of company a will drop to 6.52, thanks to the interest rate difference. at this time, it is obvious that selling us dollars and exchanging them for rmb is a big profit.

the market's previous expectation was that the rmb had risen too much in the previous period, and once the fed's interest rate cut was implemented and the good news was realized, the rmb exchange rate might fall. however, the facts were just the opposite. the rmb continued to appreciate after the fed's interest rate cut. the reason why this situation exceeded expectations was that the market did not anticipate that the market's willingness to sell dollars and take rmb would be so strong, that is, export companies concentrated on settling foreign exchange, and this force was greater than other forces in the market, leading to the continued appreciation of the rmb.

regarding the future trend of rmb,citic securitiesthe research report believes that the rmb exchange rate is likely to approach 7.0, and predicts that the probability of the rmb exchange rate breaking through 7.0 this year is not high. "first, although the fed's interest rate cut this time is large, the subsequent path it provides is flexible and stable. second, the domestic economy still has the problem of insufficient effective demand in the short term. third, we believe that the people's bank of china hopes to maintain exchange rate stability, and there may be certain risks in both rapid appreciation and depreciation. we reviewed the past three rounds of rmb appreciation cycles and found that the us dollar index weakened significantly and the domestic economic fundamentals improved significantly."

however, the author believes that the chinese economy is still in a state of liquidity shortage and the actual interest rate is still relatively high. judging from the statements of the regulatory authorities, there is little possibility of large-scale easing. some markets have experienced liquidity tightening, such as the stock market and real estate. this has led to the scarcity of rmb in the country, which is also one of the reasons why enterprises have concentrated on foreign exchange settlement. therefore, the rmb's room for appreciation may continue for some time in the future.

editor-in-charge: meng junlian chief editor: zhang zhiwei