Since early November, both onshore and offshore markets have seen a fluctuating downward trend in the renminbi exchange rate, with the renminbi against the US dollar repeatedly hitting new lows. As of the close on December 11th, the onshore renminbi to US dollar exchange rate was 7.2678 yuan, a cumulative drop of 1,518 basis points from 7.1160 yuan on November 1st, a decline of 2.13%; the offshore renminbi to US dollar exchange rate was 7.2794 yuan, down 1,576 basis points from the closing rate of 7.1218 yuan on November 1st, a decline of 2.21%.
Strong Dollar Increases Depreciation Pressure
The strengthening of the US Dollar Index (DXY) is one of the main reasons for the decline of the renminbi exchange rate. The strong performance of the dollar in the global market has intensified the depreciation pressure on the renminbi. Following Donald Trump's election as President of the United States, there was a strong market expectation for the "Trump Trade," pushing the dollar higher. Data from Wind shows that since November 6th, the US Dollar Index has consistently remained above 105, reaching a three-month high of 107.4911 on November 22nd.
As the dollar remains strong, the renminbi-to-dollar exchange rate has faced increased downward pressure. Analysts believe that behind the dollar's strength, aside from the uncertainty of Trump’s policies, the Fed’s interest rate hike cycle and expectations of a strong recovery in the US economy are also key factors driving the dollar's rise.
Central Bank Policies and Economic Recovery Support the Renminbi
Although the US Dollar Index continues to rise, the downward pressure on the renminbi exchange rate persists, but recent market trends have shown some changes. On December 11th, both onshore and offshore renminbi exchange rates strengthened, with the renminbi breaking through the 7.25 yuan mark against the dollar. This rebound is directly related to the pullback of the Dollar Index and also reflects market confidence in China's economic recovery.
Analysts point out that although the US Dollar Index may remain at high levels in the short term, expectations of the Fed gradually initiating a rate-reduction cycle limit the potential for the dollar to rise much further. Coupled with the Chinese central bank's ample monetary policy tools and foreign exchange reserves, it can intervene timely when the renminbi faces significant depreciation pressure, and the market expects the depreciation pressure on the renminbi to be alleviated.
Additionally, as a series of favorable policies in China are implemented, and the economy stabilizes and rebounds, the stability of the renminbi exchange rate has been further supported. Experts point out that the Chinese government has intensified policy efforts to promote stable economic growth and gradually eliminate external uncertainties. China's significant economic recovery momentum, along with indicators such as export growth and investment rejuvenation, provide stable support for the renminbi.
Future Trends and Market Expectations
In the future, the trend of the renminbi exchange rate will continue to be influenced by multiple factors. The direction of the US Dollar Index remains one of the key factors. Although the dollar is performing strongly in the current economic environment, the potential for further strengthening, driven by the Fed's rate-reduction cycle, may be limited. Meanwhile, the recovery of China's economy and the implementation of a series of economic policies will also help lessen the depreciation pressure on the renminbi to some extent.
The renminbi may continue to experience volatility in the short term, but as the global economic environment changes, particularly with adjustments in US economic policies and the recovery of the Chinese economy, the renminbi exchange rate may gradually stabilize.
Overall, the renminbi exchange rate will face dual challenges from external markets and internal economics in the future. Investors need to pay attention to global economic trends and changes in Chinese economic policies, and carefully manage exchange rate risks.
