At the end of January, the RMB exchange rate handed over the "answer sheet" for the first month of the new year. Based on data from China Money Network and Wind, on January 31, the central parity rate of the RMB appreciated for two consecutive trading days, with a slight increase of 16 basis points in a single day. On the same day, the onshore and offshore RMB exchange rates against the US dollar fluctuated around 7.17.
Overall, the exchange rate of the RMB against the U.S. dollar in January was generally weak and fluctuated, but the amplitude was still smaller than the exchange rates of the Japanese yen against the U.S. dollar and the euro against the U.S. dollar. Some analysts pointed out that short-term fluctuations will not change expectations for a rebound in the RMB exchange rate, and the RMB exchange rate may still maintain weak fluctuations in the short term. However, with the support of domestic economic recovery, the RMB exchange rate is expected to stabilize and rebound slightly.
Weak volatility
On January 31, the People's Bank of China authorized the China Foreign Exchange Trading Center to announce that the central parity rate of the RMB exchange rate in the inter-bank foreign exchange market on January 31, 2024 was: 1 U.S. dollar to RMB 7.1039 yuan, and the central parity rate on the previous trading day was 7.1055 yuan. The single-day adjustment rose 16 basis points.
The central parity rate of the RMB has shown an appreciation trend for two consecutive trading days, and has recently fluctuated around 7.11. Calculated based on the RMB central parity quotation of 7.0827 on the last trading day of 2023, the RMB central parity rate dropped by 212 basis points cumulatively throughout January.
The onshore and offshore RMB exchange rates also showed a slight depreciation trend during the month. Among them, the opening price of the onshore RMB was 7.1754, which was slightly higher than the closing price of the previous trading day by more than ten basis points. After the opening, the overall price remained in the range of 7.17-7.18; the opening price of the offshore RMB was 7.1875, and the overall price fluctuated around 7.19 after the opening. The highest appreciation reached 7.1838.
As of 17:45 on January 31, the onshore RMB exchange rate against the U.S. dollar was at 7.1762, with an intraday appreciation rate of 0.02%; the offshore RMB exchange rate against the U.S. dollar was at 7.1863, with a slight intraday appreciation of 0.03%. Judging from the performance of the whole month, the onshore RMB exchange rate depreciated by 1.19%, and the offshore RMB exchange rate depreciated by 0.86%.
Beijing Business Daily reporters further sorted out past data and found that since November 2023, the RMB exchange rate against the US dollar has started a strong appreciation trend. After the onshore and offshore RMB exchange rates recovered multiple levels, they both returned to above 7.1 at the end of 2023. The market is clamoring for the RMB exchange rate to return to within "7". After entering 2024, the RMB exchange rate against the US dollar failed to continue the appreciation trend of the previous two months, and the offshore RMB exchange rate once fell below 7.23.
Regarding the performance of the RMB, the chief economist of CITIC Securities clearly pointed out that since the beginning of the year, the overseas market’s revision of expectations for the Federal Reserve’s interest rate cut has driven the U.S. dollar index and 10-year U.S. bond yields to rebound, which has combined with the domestic market’s impact on domestic economic growth. Due to factors such as weak expectations and low risk appetite in the domestic financial market, the RMB has been weak and volatile.
Zhou Maohua, a macro researcher at the Financial Markets Department of China Everbright Bank, further explained that as the United States released stronger-than-expected employment, consumption, GDP and other data at the beginning of the year, triggering market adjustments to the Federal Reserve's bets on a sharp interest rate cut in 2024, U.S. bond interest rates rebounded, and the U.S. dollar rebounded. But overall, the fluctuation range of the RMB exchange rate against the US dollar is lower than the fluctuations of the US dollar index and the Euro against the US dollar exchange rate. At the same time, the exchange rate of the RMB against a basket of currencies (CFETS) actually rose and appreciated in January.
According to Wind data, as of 17:45 on January 31, the U.S. dollar index was at 103.4929, with an intraday appreciation rate of 0.1% and an increase of more than 2% in January. Under the strong rebound of the US dollar index, the euro depreciated against the US dollar by 1.86% in January, and the Japanese yen depreciated against the US dollar by 4.56%. According to data from China Money Network, as of January 26, the CFETS RMB exchange rate index was 98.93, an increase of 0.17%.
Recovery expectations
It should be noted that although the RMB exchange rate showed a slight depreciation overall in January, due to factors such as the policy changes of major overseas economies and the recovery of the domestic economy, the market generally believes that the appreciation of the RMB exchange rate during the year is a high probability event.
In terms of external factors, since the end of 2023, many central banks, including the Federal Reserve, have pressed the pause button on interest rate hikes, and U.S. inflation expectations have cooled, which will alleviate external pressure on the RMB exchange rate. In terms of internal factors, according to data previously released by the National Bureau of Statistics, preliminary calculations show that my country’s gross domestic product (GDP) in 2023 will be 126,058.2 billion yuan, an increase of 5.2% over the previous year at constant prices, and the fundamentals are being repaired at an accelerated pace. And is in a clear upward trend.
On the other hand, regarding the RMB exchange rate, regulatory authorities have released positive signals several times, setting a "stable" tone for the RMB exchange rate trend. On January 24, the State Council Information Office held a press conference. Pan Gongsheng, Governor of the People's Bank of China, once again mentioned topics related to the RMB exchange rate. Pan Gongsheng said that the RMB exchange rate will continue to remain basically stable at a reasonable equilibrium level in 2024. The People's Bank of China will maintain the flexibility of the RMB exchange rate and give full play to the function of the exchange rate as an automatic stabilizer in regulating macroeconomics and the balance of international payments. We insist that the exchange rate is mainly determined by the market, while adhering to bottom-line thinking, enriching response tools, and preventing the formation of unilateral consensus expectations and self-reinforcement.
Regarding the development of the RMB exchange rate in the next stage, Zhou Maohua said that short-term fluctuations will not change the expectation of a rebound in the RMB exchange rate. The main reason is that the RMB exchange rate this year faces a relatively favorable internal and external environment. Mainly affected by the following factors: the domestic economy is steadily recovering, foreign trade is resilient, the international balance of payments is expected to be basically balanced, and the RMB exchange rate is supported by solid fundamentals; inflation and economic prospects in developed economies are slowing down, and the corresponding interest rate policies are gradually transitioning to an interest rate reduction cycle. Overseas The spillover impact of the policy on my country will gradually weaken, and the dollar’s upside potential will actually be restricted.
Mingming believes that in the short term, with limited incremental information, the RMB exchange rate may still maintain weak fluctuations. In the medium to long term, as the United States enters an interest rate cutting cycle, the global liquidity tightening environment is expected to improve significantly. However, whether foreign capital can significantly flow back into the Chinese market, including the repair of direct investment accounts and securities investment accounts, may still depend on the degree and extent of domestic economic recovery and future long-term economic growth expectations. Under the neutral assumption that the domestic economy continues to recover, domestic policies maintain a certain intensity, the U.S. economy gradually cools down, and the Federal Reserve gradually begins to cut interest rates, the RMB exchange rate is expected to stabilize and rebound slightly.
Beijing Business Daily reporter Liao Meng