- The USD/CNY spot rate maintained a narrow range in the morning session, with the RMB's central parity rate against the USD adjusted to its highest level in over three years. This indicates that despite the spot rate strengthening, regulators are signaling stability by widening the deviation of the central parity's counter-cyclical factor to control the pace and encourage two-way fluctuations.
- The May China Manufacturing Purchasing Managers' Index, jointly released by RatingDog and S&P Global, recorded 51.8, marking six consecutive months in the expansion zone and exceeding market expectations, providing fundamental support for the RMB.
- The global forex market is focused on Middle East geopolitical negotiations and the upcoming U.S. non-farm payroll data to be released on Friday. Expectations for a Fed rate hike by the end of the year are rising, with the Dollar Index (DXY) maintaining high volatility.
Central Parity Signals Control Pace Deviation Widening
On Monday, the RMB's central parity rate against the USD was set at 6.8167, the highest since February 14, 2023. However, it is noteworthy that this actual published value was over 520 basis points weaker than Reuters' forecast. Market analysts point out that in the context of the spot rate's previous continuous strengthening, regulators chose to let the central parity's actual performance be significantly weaker than market model predictions, clearly indicating a reluctance for the RMB to appreciate too quickly. By adjusting the central parity, regulators are sending a signal to guide two-way exchange rate fluctuations and prevent the accumulation of unilateral expectations. In the short term, the RMB's previous strong upward trend may slow down.
Stronger-than-expected Macroeconomic Fundamentals Provide Support
In terms of economic data, the latest China May Manufacturing Purchasing Managers' Index showed resilience. The seasonally adjusted index, jointly released by RatingDog and S&P Global, slightly declined to 51.8, but still exceeded the previous Reuters survey median estimate of 51.6. This indicator, reflecting the business climate of small and medium-sized enterprises, has remained above the threshold for six consecutive months, indicating that manufacturing production and demand activities are still on a moderate expansion track. Healthy macro trade items and the continued recovery of real economic activities, amid sustained settlement inflows, have built a solid foundation for the RMB exchange rate.
Seasonal Forex Purchases and Trade Surplus Create Tug-of-war
Entering June, the RMB exchange rate faces more seasonal capital flow characteristics. The CMB's Capital Operations Center noted in its latest report that supported by the accumulated trade surplus, the RMB exchange rate is expected to maintain certain resilience in the short to medium term. However, June is also traditionally the peak period for overseas-listed Chinese companies to distribute dividends, and the rise in seasonal forex purchase demand may partially offset the support from settlement inflows. CMB expects the Dollar Index to operate within the 97.6 to 100.6 range in June, while the USD/RMB spot rate is likely to maintain two-way fluctuations within the 6.7 to 6.79 range.
Geopolitical and Fed Policy Prospects Intertwined
In the external environment, the international forex market is facing multiple uncertainties. Geopolitically, developments in the Middle East have become the focus of global traders. U.S. Secretary of State Marco Rubio has engaged in diplomatic negotiations with senior officials from Lebanon and Israel, while Iran has confirmed that communication channels with the U.S. remain open. If geopolitical tensions ease, global risk appetite may rise, potentially putting some pressure on the USD. However, as the market is sensitive to the upcoming U.S. non-farm payroll increase of 85,000 and the unemployment rate remaining at 4.3%, and with the market currently betting that the Fed's next move will be a rate hike possibly implemented by the end of the year, the Dollar Index maintained a relatively stable performance on Monday, leading to the potential for a phase of revaluation for non-USD currencies.
