At the end of the year, it coincided with the peak period for foreign trade enterprises to settle foreign exchange. At the beginning of December, the RMB suddenly depreciated, and the offshore RMB exchange rate fell below 7.28.
At the beginning of December, the US dollar index continued to fluctuate at a high level, and the RMB exchange rate continued to be under pressure. On December 2, the onshore RMB exchange rate against the US dollar fell below the 7.26 mark, falling more than 100 points during the day; the offshore RMB exchange rate against the US dollar fell significantly in the short term, falling more than 350 basis points, and fell below the 7.28 mark, the lowest level since July. As of 11:30, the onshore and offshore RMB against the US dollar were reported at 7.2652 and 7.2734 respectively. Global foreign exchange market fluctuations have increased significantly recently. Taking the US dollar index as an example, last week, the US dollar storm swept the foreign exchange market. At the beginning of last week, affected by geopolitical factors that stimulated market risk aversion, the US dollar index stood above the 108 mark, reaching its highest level since November 2022. Subsequently, the minutes of the Federal Reserve's November meeting stated that it supports gradual interest rate cuts. In addition, the US PCE price index rebounded in October, and the market's expectations for interest rate cuts continued to consolidate. The US dollar index fell from its highs again, falling sharply for three consecutive trading days, and once fell to around the 106 mark.
1. The impact of Trump's election After Trump came to power, his radical tariff policy and economic plan caused the US dollar index to rise. The "Tariff 2.0" policy has strained Sino-US trade relations. The market expects that China's foreign trade will be under pressure, and the depreciation of the RMB has become a means to hedge against the decline in exports. 2. The continuation of Sino-US trade frictions Since 2018, the trade frictions between China and the United States have become an important factor affecting the RMB exchange rate. The Trump administration's trade policy has been restarted again, and the RMB exchange rate has returned to the core topic of Sino-US economic and trade consultations, forcing the RMB to face greater pressure. 3. Market expectations and capital outflows Since the market generally expects that the RMB will continue to depreciate, investors' confidence in RMB assets has declined, and funds have begun to flow to safer US dollar assets, which has further increased the pressure on the depreciation of the RMB. Especially in the context of increasing global economic uncertainty, capital flows and market sentiment interact with each other, deepening the risk of short-term depreciation of the RMB. The latest research report of the Foreign Exchange Commodity Department of Industrial Bank Research believes that non-US currencies may have a respite, and the rebound of the yen, which is also a financing currency, will also have a pull on the RMB exchange rate. The RMB is expected to rise steadily in December. This is in line with the seasonal law at the end of the year and the beginning of the year, but considering the expected changes in exchange rates, the strength of the rigid foreign exchange settlement before the Spring Festival this year may be weaker than the same period in history.
In the short term, from the policy level, judging the trend of the RMB exchange rate against the US dollar, the key position of the onshore RMB exchange rate against the US dollar is 7.3. This is not only a key node for the market to judge the trend of the RMB exchange rate, but also the "policy bottom" of the central bank in the RMB exchange rate market. Preliminary judgment, if the onshore RMB exchange rate against the US dollar touches this position, the central bank may take counter-cyclical adjustment actions to prevent the market's unilateral expectations from self-reinforcing and keep the RMB exchange rate basically stable. In the Hong Kong market, the central bank's increase in offshore bills and the Ministry of Finance's issuance of RMB treasury bonds to recover RMB liquidity in the offshore market are important policy tools. The central bank's increase in offshore bills can convey to the international market its determination to prevent the risk of overshooting and falling in the RMB exchange rate; the Ministry of Finance's issuance of RMB treasury bonds will help increase offshore RMB interest rates and increase the cost of international speculative capital shorting the RMB. For a long period of time in the future, the central bank may continue the idea of "maintaining the basic stability of the RMB exchange rate at a reasonable equilibrium level" and flexibly use exchange rate stabilization tools to prevent large unilateral fluctuations in the RMB exchange rate.
The recent strength of the US dollar has mainly affected textile foreign trade companies in two aspects. First, foreign exchange settlement. The end of each year is the day for textile companies to settle accounts, and they need to have a large amount of working capital on hand, especially at this stage. Now that the RMB continues to depreciate due to the strength of the US dollar, the US dollar exchange rate is at a relatively high point, which helps textile companies to obtain more cash flow in foreign exchange settlement and better spend this year's "year-end". Second, profit. This depreciation is not unique to the RMB, but a collective depreciation of a large number of non-US currencies around the world. Therefore, for markets other than the United States, customers' order quotations will also be adjusted due to the exchange rate. The actual order profit will not change much, but the risks of the RMB exchange rate once it is adjusted in the future should also be considered. Overall, due to the Fed's interest rate hikes in the past few years, there have been many cases of large fluctuations in exchange rates, and textile companies have also taken certain countermeasures to this.
