RMB Mid-Rate Down 635 Pts, Possibly Affected by USD Index

On October 8th, according to an announcement from the People's Bank of China, the central parity rate of the Renminbi (RMB) in the interbank foreign exchange market was set at 7.0709 RMB per US dollar. Compared to the central parity rate of 7.0074 RMB per US dollar published by the central bank on September 30th, this represents a depreciation of 635 basis points.

Previously, influenced by factors such as the Federal Reserve's interest rate cut on September 20th, external pressures eased, and the RMB exchange rate entered a "good period," with both offshore and onshore exchange rates approaching the 7.0 threshold. On September 24th, at a press conference held by the State Council Information Office, the central bank governor Pan Gongsheng announced a series of accommodative monetary policies including reserve requirement ratio cuts, interest rate reductions, and reductions in outstanding housing loans. On the morning of September 25th, the offshore RMB exchange rate against the US dollar broke through the 7.0 threshold. Recently, under the impetus of a series of policies, both onshore and offshore RMB exchange rates have maintained a strong upward trend.

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On September 30th, the closing prices of the onshore and offshore RMB exchange rates were 7.0156 and 7.0066, respectively, reaching the highest values in nearly three months. According to Wind data, as of 11:09 AM today, the onshore RMB exchange rate against the US dollar was reported at 7.0704, and the offshore RMB exchange rate against the US dollar was reported at 7.0722, which are 548 and 656 basis points lower than the closing prices on September 30th, respectively. After the National Day holiday, both offshore and onshore exchange rates have shown more noticeable fluctuations.

Wang Qing, the chief macro analyst at Orient Jincheng, believes that the significant reduction in the RMB central parity rate this time is due to the substantial rise in the US Dollar Index, leading to a passive depreciation of the RMB against the US dollar, and does not represent an intrinsic depreciation pressure on the RMB. The rise in the US Dollar Index was influenced by the new Japanese government's statement during the holiday that "there is currently no environment for further interest rate hikes," which led to a significant appreciation of the US dollar against the Japanese yen, driving the US Dollar Index to rise noticeably.

Wang Qing further stated that in the coming period, as growth-stabilizing policies continue to gain momentum and the growth momentum of the economy in the fourth quarter tends to improve, the RMB is expected to continue its recent strong state. Among them, the CFETS and other three major basket RMB exchange rate indices, which represent the overall exchange rate level, will also maintain an upward trend. Overall, the next step for the RMB will continue to maintain a pattern of inverse fluctuation with the US dollar, and the possibility of a significant rise or fall脱离 the US dollar trend remains very small.

At the press conference on the 24th, Pan Gongsheng stated that the factors affecting the exchange rate are very diverse, such as economic growth, monetary policy, financial markets, geopolitical events, and sudden risk events. Looking at the external situation, influenced by the divergence of economic trends among countries, geopolitical changes such as the US election, and fluctuations in international financial markets, the uncertainty of the external environment and the trend of the US dollar still exists. Looking at the domestic situation in China, the RMB exchange rate still has a relatively stable and solid foundation.