Caixin News Agency, November 12th (Reporter Liang Kezhi) In early trading today, the US dollar index was driven by factors such as the expected strengthening of US economic data in October, breaking through the high point of 105.47 since July, and continued to rise, driving the depreciation of non US currencies including the Chinese yuan.
On November 12th, the central parity rate of the Chinese yuan against the US dollar was lowered by 141 basis points to 7.1927, the lowest since September 12th, 2023.
As of press time, the offshore RMB fell more than 150 basis points at one point, to 7.2435, one step away from the psychological barrier of 7.25; At the same time, the US dollar has appreciated to varying degrees against the Japanese yen, Canadian dollar, and Swiss franc, with an increase of around 0.05%.
On November 12th, a foreign exchange researcher from a Chinese funded institution in Hong Kong told Caixin that the United States will release its latest economic data on Thursday. Currently, the market expects strong data in October, and expectations for the Federal Reserve's interest rate cuts and a soft landing have decreased, which has boosted the market's bullish sentiment towards the US dollar.
The chief economist of CITIC Securities clearly believes that after Trump's victory, external disturbances or the biggest risk factor for the RMB exchange rate, and it is expected that the RMB exchange rate may continue to weaken even if the US dollar is not weak. In the future, it is necessary to focus on whether the stimulus policies related to domestic demand can maintain their intensity to a certain extent, in order to hedge the impact of external risks on the RMB exchange rate.
In addition, Mingming emphasized that the central bank's reserve of stabilizing exchange rate tools is sufficient, which helps prevent significant unilateral fluctuations in the RMB exchange rate.
Exchange rate fluctuations intensify in both directions, institutions call for seizing the time window
According to the plan, the CPI and PPI data for October will be released on November 13th local time in the United States.
Market expectations show that Bloomberg Economics economist Anna Wong and others believe that "both CPI and PPI are expected to rise in the United States in October, which will push up long-term yields and further suppress the economy in the coming months. We expect the unemployment rate to continue to rise, reaching 4.5% by the end of the year
On November 11th, the latest report from China International Capital Corporation (CICC) believes that the strength of the US dollar in the first half of the year is strongly related to the delayed expectation of interest rate cuts and the upward trend of US dollar interest rates. However, the sharp decline in the US dollar trend in the third quarter can be attributed to the resumption of interest rate cut trading and the closing of carry trades driven by it. The rebound of the US dollar index so far in the fourth quarter is due to the expectation of interest rate cuts rebounding again under the influence of strong US economic data.
On November 12th, Jing Chuan, Chief Economist of East Asia Futures, believed that China's recent massive bond issuance plan has accelerated expectations of tightening market liquidity and put pressure on the renminbi. At present, the trend of RMB depreciation is expected to continue.
Mingming, Chief Economist of CITIC Securities, analyzed that since the beginning of this year, the trade surplus in goods has remained relatively high, and the marginal widening of the trade deficit in services has jointly driven the narrowing of China's current account surplus compared to last year. Considering that China's exports may be under pressure next year and face the risk of US tariffs, coupled with the further repair of cross-border travel demand, the trade deficit in services may continue to widen. It is expected that this trend will continue.
In the securities investment account, it is expected that capital outflow pressure may be concentrated in the equity market, and foreign investment continues to significantly increase its holdings of RMB bond assets. It is expected that the volatility of capital flows in the securities account will intensify in the future, thereby strengthening the volatility of the RMB exchange rate.
According to the latest data from the central bank, in October 2024, China's foreign exchange reserves, denominated in US dollars, amounted to 3261.1 billion US dollars, a decrease of 55.3 billion US dollars compared to the previous period, and an increase of 28.2 billion US dollars in the previous value.
Regarding the recent hedging strategy, Industrial Research released its opinion on November 11th, stating that with the landing of the US presidential election boots, the "Trump deal" will come to a temporary end, and non US currencies including the Chinese yuan will receive support. The foreign exchange settlement exposure particularly needs to grasp the limited window period before the US dollar exchange rate and interest rate have significantly fallen. Both foreign exchange purchase and settlement exposure need to be actively and flexibly hedged, especially paying attention to the settlement window period before the end of the election.
The policy of stabilizing the exchange rate is waiting for an opportunity to take effect, and the impact of this round of tariffs may be weaker than the previous round
In its quarterly economic forecast for September, the Federal Reserve further expects core PCE inflation in the United States to fall to 2.2% in 2025 and 2.0% in 2026.
Based on this, analysts such as Li Liuyang from CICC believe that US inflation may further decline in the short term due to factors such as base and high interest rates. However, with the decline in interest rates and changes in base, the year-on-year inflation rate may change later next year, leading to the end of the downward cycle of the US dollar.
However, Mingming believes that in terms of domestic factors, if the stimulus policies related to domestic demand continue to maintain their intensity in the face of weakened external demand expectations, they may be able to hedge the impact of external risks on the RMB exchange rate to a certain extent.
In its outlook for the exchange rate in 2025, China International Capital Corporation (CICC) believes that due to significant differences in the macro and policy environment next year compared to 2018, the impact of this round of tariff increases on the RMB exchange rate may be smaller than in 2018.
Analyst Li Liuyang believes that if economic expectations improve next year, cross-border funds are expected to flow in from financial projects, partially filling the current account gap caused by the reduction in trade surplus in goods.
Secondly, the central bank's stable exchange rate policy may provide support for exchange rate expectations. The expected exchange rate of the RMB has remained overall stable since the beginning of this year, and the policy of stabilizing the exchange rate has played an important role in it. It is expected that the policy of stabilizing the exchange rate will continue to exert force next year, and the depreciation space of the RMB exchange rate may be relatively limited.
Jingchuan also believes that the countercyclical adjustment factor of the central bank has been playing a role, and in the case of continuous depreciation of the RMB, it may trigger the central bank to intervene in the offshore market exchange rate. At that time, the interest rate of the RMB in the offshore market is bound to significantly rise.