On December 3rd, the offshore Renminbi fell below the 7.30 mark against the US dollar, dropping over 150 points within the day, highlighting the pressure on the Renminbi exchange rate. This decline is mainly influenced by two factors: on the one hand, there is the rising expectation of US tariff policies in the market, with investors betting that non-US currencies will continue to fall; on the other hand, China's 10-year government bond yield once fell below 2%, causing the US-China interest rate spread to widen to 217 basis points, further exacerbating the downward pressure on the Renminbi. This change attracted some overseas quantitative funds to increase their short positions on the offshore Renminbi, pushing the Renminbi exchange rate to continue its downward trend.
Meanwhile, Federal Reserve Governor Waller recently stated that he tends to support another rate cut in December unless the economic data shows an unexpected performance. He believes that the current policy rate is already restrictive, so a rate cut remains a reasonable choice. However, if economic data suggests that the expectation of slowing inflation is no longer valid, he is also willing to support maintaining the current interest rate. Waller's statement has drawn more attention to the future policy direction of the Fed.
Concerning the dollar's trajectory, a Forex trader at a Hong Kong bank pointed out that the current market sentiment for the dollar is at a peak, with hedge funds' dollar long positions hitting the highest level since 2016. Although the dollar has continued to strengthen recently, excessive bets on the dollar by investors may increase the risk of a dollar pullback. As the year-end approaches, global investment institutions might face annual portfolio adjustments, potentially leading to profit-taking in dollar assets and positions, thereby slowing the dollar's upward momentum.
Considering the current market environment, the Renminbi still faces a certain downward pressure, especially with the widening US-China interest rate spread and the influence of overseas capital flows. However, from the perspective of the dollar, the upward space of the dollar index might have approached its peak, and year-end fund adjustments could lead to a dollar retracement. The market needs to cautiously watch the exchange rate trends and the Fed's monetary policy direction in the coming weeks.
