Rising Demand for RMB: A Signal of a "Stronger" Exchange Rate
Bank of America Securities pointed out in its research on February 4 that recent buying interest in the RMB has noticeably increased. The People's Bank of China set the RMB midpoint at 1 USD to 6.9533, 75 pips stronger than the previous day's rate, breaking the 6.96 threshold, marking the strongest level in about 33 months.
BofA Updates Forecasts: USD/CNY Target Lowered from 6.8 to 6.7
BofA believes the recent RMB appreciation momentum mainly comes from two clues: the resilience in export performance and more confident policy signals. Based on this, BofA has lowered its Q3 and Q4 USD/CNY forecasts from 6.8 to 6.7.
"Spillover Effect" is Key: From Bilateral Rates to Trade-Weighted and Emerging Markets
What's more noteworthy for the forex market is BofA's emphasis that RMB strength may not only be reflected in bilateral quotes but is spreading towards broader trade-weighted appreciation: affecting the central bank's CFETS basket and increasingly resonating with emerging market currencies. BofA also cautions that "correlation does not imply causation," yet this combination is becoming harder to ignore; in its framework, a weaker dollar is reciprocally reinforcing the performance of emerging market forex.
Trade Structure Changes: Strengthening Exports to Europe and "EUR/RMB" at Ten-Year High
The report also shifts focus to trade: BofA states that the high tariff environment in the U.S. is prompting China to export more to Europe, with the EU's trade deficit with China approaching extreme levels seen during the pandemic. Notably, although the deficit's expansion partly reflects a phase of RMB weakening against the euro, unlike during the pandemic, it hasn’t suppressed the EUR/CNY rate but instead pushed it to a ten-year high, increasing pressure on European exporters and generating calls for RMB appreciation.
Narrative of a Stronger RMB: Internationalization and Potential Risks
BofA mentions that a narrative around a stronger, more internationalized RMB is taking shape, with an important signal coming from top-level statements reported over the weekend — the aim to create a "stronger currency" for broader use in international trade and investment, with reserve attributes. At the same time, BofA also warns that pursuing an overly aggressive appreciation path could bring concerns of overvaluation and financial stability issues; in its analysis, outcomes of the U.S.-China AI race could affect productivity and the sustainability of exchange rate valuations.
Conclusion: USD Still Dominates, RMB Might Take a "Regionally Expanded Use" Balanced Approach
Overall, BofA judges that the USD is likely to maintain its dominant position over the next decade, with the global financial system remaining heavily U.S.-centric; however, the RMB could follow another milder path — enhancing its level of internationalization by expanding its use in Asia and the "global south," thereby reducing its reliance on "needing to rely on significant appreciation."
