Recently, the US dollar index has been rising continuously driven by expectations for Trump's policies and strong economic data, exerting pressure on non-US currencies, including a significant impact on the RMB/USD exchange rate. On November 12th, the central parity rate of RMB against the dollar was lowered by 141 basis points to 7.1927, marking the lowest point since September 2023. Offshore RMB exchange rate dropped to 7.2435 at one point, approaching the psychological support level of 7.25. Meanwhile, the dollar appreciated against the yen, Canadian dollar, and Swiss franc, benefiting from market expectations for a rise in US October CPI data.
A foreign exchange analyst at a Chinese institution in Hong Kong pointed out that market expectations that the Federal Reserve may delay rate cuts, coupled with upcoming US economic data, have strengthened bullish sentiment on the dollar, putting pressure on the RMB. The chief economist at CITIC Securities analyzed that external disturbances remain the main risk factor for the RMB exchange rate, though if stimulus policies related to domestic demand maintain their strength, they may partially alleviate external pressure. Moreover, the central bank's ample policy reserves for stabilizing the exchange rate could effectively prevent unilateral exchange rate fluctuations.
With the upcoming release of US October CPI and PPI data on November 13th, the market expects US inflation levels to continue rising, which may lead the Federal Reserve to push long-term yields higher, affecting the economic outlook in the coming months. A report from China International Capital Corporation suggests that the recent strong rebound of the dollar is mainly due to the delayed expectations of rate cuts, but if the US economy slows down in the future, the dollar's trend may reverse again.
Domestically, China has recently announced a large-scale bond issuance plan, increasing expectations of tightened market liquidity, thus putting pressure on the RMB exchange rate. Coupled with a narrowing global current account surplus and widening service trade deficit, the RMB depreciation trend is expected to continue. China International Capital Corporation noted that this year's capital outflow pressure is concentrated on the stock market, while foreign capital continues to increase holdings of RMB bonds, anticipating further intensification of capital flows in securities accounts, further increasing exchange rate volatility.
Overall, against the backdrop of a stronger dollar driven by Trump's policies, the depreciation pressure on the RMB is unlikely to be alleviated in the short term. However, domestic policies aimed at stabilizing the exchange rate and stimulating domestic demand may provide support for the exchange rate.
