Policy and Exchange Rate: Internal and External Forces Working Together
The US Federal Funds target rate range was lowered by another 25 basis points to 3.75%-4.00%, marking the second easing this year. The narrowing interest rate differential advantage of the US dollar and its declining strength, together with domestic stabilization of exchange rate policies aimed at steady expectations and closing expectation gaps, have collectively contributed to the phased appreciation of the Renminbi. The Renminbi's central parity rate has cumulatively risen by about a thousand points this year, once regaining the 7.10 mark in October, reinforcing a market correction of the unilateral bearish sentiment on the US dollar.
Foreign Exchange Transactions: Increased Settlement Intentions and Significant Surplus Expansion
Enterprises and residents showed an increased "settlement ratio," while the motivation for purchasing foreign exchange diminished, resulting in a significant surplus in bank foreign exchange transactions. In September, the settlement and sale of foreign exchange denominated in Renminbi were approximately 1.88 trillion and 1.52 trillion, respectively; in US dollar terms, settlements were about $264.7 billion, and sales were about $213.6 billion, with a single-month surplus reaching $51 billion, marking a new high since early 2021. Since May, the foreign exchange settlement and sale have recorded continuous surpluses for five months, reflecting both the appreciation expectations for the exchange rate and the improvement in cross-border income and expenditure.
External Demand and Capital: Trade Resilience Combined with Equity Attraction
In September, foreign trade maintained its upward momentum, with accelerated export growth and simultaneous improvement in imports. The trade surplus in goods provided a "fundamental base" for foreign exchange supply. Meanwhile, after the decline in US Treasury yields, global fund rebalancing has drawn attention to Renminbi assets that balance security and profitability. In the first three quarters, net inflows of securities investment to China approached the $100 billion level. Coupled with structural activity in the A-share market, both northbound and long-term funds entered in synchrony, enhancing the marginal pricing of Renminbi assets.
Transmission Mechanism: Price Signals Leading to Behavioral Shifts
The appreciation of the Renminbi and the decline in volatility have prompted export-oriented companies to prefer locking in foreign exchange settlements, while importers have temporarily delayed purchases of foreign exchange. The combination of rising bank client settlement rates and declining sale rates constitutes the direct logic for the expanded surplus in September. Meanwhile, the toolkit for stabilizing exchange rates continues to exert force at the level of expectation management, suppressing the "positive feedback" between cross-border revenue and expenditure and exchange rate volatility, and increasing market tolerance for two-way fluctuations.
Risks and Key Concerns: Interest Rate Differentials, Oil Prices, and Geopolitical Variables
Looking ahead, the trajectory of the Renminbi will still depend on three sets of variables: first, the rebalancing path of the China-US interest rate differential—if the Federal Reserve continues to cut rates while domestic policy remains prudent and neutral, the interest rate differential recovery will continue to support the Renminbi; second, fluctuations in commodity energy prices can disturb trade and inflation expectations; third, geopolitical and tariff uncertainties may affect external demand and capital flows. At present, exchange rate expectations are becoming more rational, and the foreign exchange surplus provides a "cushion" for the foreign exchange market.
Steadiness with Strengthening Trends, Data-Driven Pace
Cross-border capital is expected to maintain a net inflow trend. Policymakers will continue to emphasize "primacy of domestic policy, range-bound fluctuations, and market clearing," maintaining a balance between exchange rate flexibility and stability through counter-cyclical guidance and expectation management. Overall, future Renminbi operations will be more data-driven: trade surplus, foreign exchange settlement ratios, cross-border securities investment, and foreign exchange reserves will become key references in assessing the phases of exchange rate turning points and the sustainability of surpluses.
