The RMB appreciated sharply and broke through the 6.4 mark. What are the reasons?

Translated from the Headlines (Toutiao 头条新闻)

Author: Leisure Finance

On October 19, the U.S. dollar and offshore renminbi fell sharply, and the U.S. dollar broke through the 6.4 mark against the renminbi. That is to say, the renminbi suddenly appreciated sharply against the U.S. dollar.

We have discussed the issue of the “abnormal” trend of the renminbi in the recent past. After June, the offshore renminbi of the US dollar showed a strong sideways pattern, fluctuating up and down between 6.4 and 6.5.

The “abnormality” mainly manifested itself after September. As the Fed’s expectation of reducing the scale of asset purchases became clearer, the U.S. dollar index began to trend stronger, breaking through the highs in August and March this year.

Following this, the currencies of other countries and regions around the world have begun to weaken against the US dollar, whether it is the euro, the British pound, the Australian dollar, or the Japanese yen. What is particularly surprising is that the RMB still maintains a strong sideways pattern.

Today, the renminbi has suddenly penetrated the turbulence that lasted for more than three months. From a technical point of view, there is a second bottoming trend, testing the 6.3525 support at the end of May.

Some people may have said that the renminbi’s sharp appreciation again today is related to the weakening of the US dollar.

It is true that the US dollar index has indeed experienced a technical correction, but in the medium term, the strong trend is still not changed, and the people’s sharp retreat of appreciation is indeed surprising.

What is the reason for the recent “abnormal” trend of the renminbi?

Let’s first think about the time point. The choice of RMB to appreciate suddenly and sharply on Tuesday, intuitively judged, is related to the important data released by the National Bureau of Statistics on Monday.

Yesterday we discussed this issue. In the first three quarters, GDP grew by 9.8%, and the third quarter’s growth of 4.9% year-on-year was lower than market expectations of 5.5%. However, for the whole year, the growth is still strong.

This is the reason why the renminbi exchange rate did not appreciate significantly on the day of the data release because the market may have doubts and there is no superimposed technical callback factor of the US dollar index.

The single-day renminbi fluctuated sharply, which is in line with another previous forecast by Xianxian Finance. Due to the complexity of the global economy in the second half of the year and our increased efforts to rectify the real estate industry, it is bound to cause unsatisfactory growth in the second half of the year.

Therefore, our central bank lowered its RRR in July, releasing one trillion yuan of liquidity. According to expectations at the time, there is still a demand for further reductions in the second half of the year.

Following the disclosure of key macro data on October 18 and 19, the PPI rose by 6.7% in the first three quarters, and the PPI rose by 10.7% in September. Faced with the soaring commodity prices, the data in October may still be rising. Xianxian Finance was once issued, and the hope of lowering the RRR again may have vanished with emotion.

In other words, the possibility of further relaxation of the money supply is very slim, which is bound to trigger a short-term strengthening of the renminbi.

Of course, the reasons for the “abnormal” trend of the renminbi are more than these.

The Sino-US trade issue has gradually eased or is the root cause.

In the near future, the US government may take action against some Chinese products, and tariffs on 549 types of Chinese products may be exempted. Although there are still complaints from the US business community, it is hoped that all of the more than 2,200 products involved in Trump’s tariffs should be exempted.

For us, breakthrough progress has been made.

According to Xianxian Financial Observation, the relevant U.S. departments may have already scheduled the exemption of related commodities. The specific time point is likely to be announced before the Fed reduces the scale of asset purchases in November.

This is undoubtedly a huge reversal of the Sino-US trade frictions in 2018. The RMB has been blessed by global capital, and a round of the epidemic has become more determined to invest in China. This is probably an important reason for the recent “abnormal” trend of the RMB.

At the same time, there will be heavy news on October 19th.

The Biden administration plans to restrict the use of economic and financial sanctions, and some observers believe that Biden may adjust its foreign policy.

In addition to Trump tariffs, it is inevitable that Chinese companies have encountered multiple rounds of sanctions by the United States. Among them, there are targeted suppression and restrictions on the purchase of shares of related companies by U.S. citizens and even forced Chinese companies to be delisted from the U.S. stock market. Wait for a series of problems to appear.

There are indications that Sino-US trade is about to usher in a major turn, and this time node seems to be too late.

The “abnormal” trend of the renminbi is reasonable.