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Financial Bulletin

280 points! Offshore yuan rose above the 7.19 mark

Release Time:2023-11-20

The yuan burst into euphoria on Monday November 20th.

The offshore yuan continued to rise against the US dollar, breaking the 7.19 mark and gaining more than 280 points on the day. The onshore yuan is also rising.

Earlier, data from the China Foreign Exchange Trade System showed the midpoint rate of the yuan strengthened 116 points to 7.1612 against the dollar, the strongest since August.

Sinolink Securities believes that the rapid weakening of the US dollar is the direct driver of the appreciation of the RMB exchange rate. The dollar index has pulled back sharply since late October and is approaching the 100 mark.

The decline of the dollar is the result of the combined effect of three factors: the marginal easing of the supply side impact of US bonds, the weakening of economic data, and the easing of speculative disturbance. Sinolink Securities wrote in its report:

First, the supply-side impact margin of US debt has eased; At its fourth-quarter refinancing meeting, the Treasury forecast net debt issuance fell to $776 billion, down $76 billion from its July estimate.

Second, weaker economic data and a dovish Fed; PMI, non-agricultural, CPI and other data released in November are lower than market expectations, and the market's expectation of interest rate cuts next year is gradually heating up.

Third, the speculative disturbance has also eased, and non-commercial short positions in US Treasuries have dropped significantly.

Guojun Securities believes that behind the appreciation of the RMB, in addition to the external factors supporting the expected end of the Fed's interest rate hike cycle, there is the credit of the central price, which acts as a "stabilizer" in the foreign exchange market, and forms strong support for the RMB under the background of the decline in the cost of shorting offshore RMB.

Guojun Macro Zhou Hao and Sun Yingli pointed out in a research report released last week that

The cost of funding the offshore yuan has started to fall significantly, meaning the cost of shorting the currency has also fallen, but instead of the depreciation that some investors had feared, the offshore yuan has taken advantage of the recent weakness of the dollar to see a strong appreciation.

The midpoint has acted as a "stabilizer" because the yuan's midpoint against the dollar has been relatively stable, and bears are still wary of policy intentions and are not easily betting in this area, but want to wait for clearer signals.

Some analysts believe that the increase in the central parity rate or shows that the regulatory layer has confirmed the rebound of the yuan under the recent weak dollar. As of Friday, the domestic and foreign yuan had gained about 1.4% and 1.7%, respectively, this month. In October, the onshore yuan continued to trade near the lower limit of the 2 percent depreciation in its intraday range, and on Monday, the maximum onshore weakness from the midpoint narrowed to only about 0.65 percent.

"The central bank may be happy to see the domestic and foreign spot and midpoint rates triple by the end of the year, especially before the next dollar rally." Zhao Zhixuan, a foreign exchange and interest rate strategist, said in a media interview that the central parity rate finally broke away from the platform area around 7.17 since September, apparently hoping to take advantage of the time window for the US dollar to weaken after the US data did not meet expectations, and promote the yuan to 7 yuan before the end of the year.

Risk warning and disclaimer

The market is risky and investment needs to be cautious. This article does not constitute personal investment advice and does not take into account the particular investment objectives, financial circumstances or needs of individual users. Users should consider whether any opinion, opinion or conclusion in this article is appropriate for their particular situation. Invest accordingly at your own risk.

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