Currency Exchange Rates - The three major RMB exchange rate indices all rose during the week of October 10, with the CFETS RMB index at 97.32, up 0.55, reaching a new high since April 2025 [1] - The BIS currency basket RMB index rose to 103.43, up 0.78, also a new high since April 2025 [1] - The SDR currency basket RMB index increased to 91.89, up 0.66, marking a new high since April 2025 [1] USD Performance - The US dollar index continued its strong performance, breaking the 99 mark and reaching a two-month high, closing at 98.82 with a cumulative increase of 1.13% [5] - Non-USD currencies, including the Japanese yen, British pound, euro, and Australian dollar, all depreciated against the USD, with the euro down 1.01% [5] RMB Exchange Rate Outlook - The onshore RMB closed at 7.1360 against the USD, while the offshore RMB closed at 7.1232, with the RMB central parity rate at 7.1048, up 54 basis points from the previous trading day [5] - Analysts expect the RMB central parity rate against the USD to stabilize between 7.10 and 7.11 in the short term, with the central bank focusing on the performance against a basket of currencies [5] RMB Appreciation Drivers - The current RMB appreciation cycle is primarily driven by the US Federal Reserve's loose monetary policy, which is expected to continue until mid-next year [6] - The recent rebound of the USD is seen as a passive reaction to the weakness of the euro and yen due to political instability, with further USD strength dependent on the recovery of the US labor market [6]

Core Viewpoint - The People's Bank of China announced an increase in the central parity rate of the Renminbi against the US dollar, indicating a strengthening of the Chinese currency in the foreign exchange market [1] Exchange Rate Summary - The central parity rate for the Renminbi was set at 7.1048 CNY per USD, an increase of 54 basis points from the previous day's rate of 7.1102 CNY per USD [1] - As of 9:35 AM on the same day, the onshore Renminbi was quoted at 7.1263 CNY per USD, reflecting a daily appreciation of 0.04% [1] - The offshore Renminbi was reported at 7.1322 CNY per USD, showing a daily appreciation of 0.08% [1]

Core Insights - The report from the Bank of China Research Institute forecasts a recovery in major financial data in Q4 2025, driven by ongoing policy support and a stable upward trend in the RMB exchange rate [1] Financial Data Outlook - Total financing is expected to steadily expand, crucial for achieving annual and "14th Five-Year Plan" economic targets, with new policies anticipated to support infrastructure and real estate sectors, leading to stable growth in financing volume [1] - Funding in key areas and weak links is projected to maintain medium to high growth, with financial institutions increasing support for sectors like technology innovation, green finance, and elderly care, resulting in credit growth rates in these areas outpacing overall loan growth [1] - Government bond financing is expected to remain high, with fiscal policies reinforcing counter-cyclical adjustments and local investment demand accelerating, leading to record-high bond issuance for the year [2] Monetary Policy and Market Conditions - Interest rates are anticipated to continue a stable downward trend, providing a favorable monetary environment for real economy financing [4] - The A-share market is likely to maintain an upward trend, although caution is advised due to previous rapid increases and rising uncertainties [4] - The RMB is expected to appreciate further, supported by a stable domestic economic environment and downward pressure on the US dollar index, with demand for currency exchange bolstering the RMB's strength [4] Global Economic Context - Global economic growth expectations are mixed, with increasing uncertainties on the demand side and relative stability on the supply side [5] - Overall global inflation is stabilizing, but the US faces risks of inflation rebound, and geopolitical factors will continue to influence global capital flows [5] - Emerging market equities are becoming more attractive amid a weak US dollar index and fluctuating US Treasury yields [5]

Core Viewpoint - In August, the expectation of a Federal Reserve interest rate cut strengthened, leading to a depreciation of the US dollar and an increase in the appreciation momentum of the Chinese yuan, while market expectations remained generally stable [1][2]. Group 1: Currency Market Dynamics - The US dollar index fell from above 100 to 97.8, a cumulative decline of 2.2%, influenced by weaker employment data and concerns over the independence of the Federal Reserve [1]. - The yuan's central parity rate appreciated for the fourth consecutive month, with an average daily appreciation of 8 basis points from August 1 to 20, and an accelerated average daily appreciation of 51 basis points in late August [2]. - By the end of August, the central parity rate and onshore and offshore yuan exchange rates reached 7.1030, 7.1330, and 7.1221 respectively, appreciating by 0.7%, 0.8%, and 1.2% compared to the end of the previous month [2]. Group 2: Cross-Border Capital Flows - In August, banks recorded a surplus of $3.2 billion in foreign exchange payments, reversing a deficit of $7.7 billion from the previous month, with foreign currency payments contributing significantly to this surplus [10]. - Foreign investment in Chinese stocks reached a net inflow of $10.8 billion, the highest since February, indicating increased foreign interest in Chinese equity assets [11]. - The overall net purchase of domestic stocks and bonds by foreign investors amounted to approximately $39 billion, dominating the inflow into emerging market investment portfolios [11]. Group 3: Foreign Exchange Supply and Demand - The bank's foreign exchange settlement and sales surplus narrowed to $16.8 billion, the lowest in four months, indicating a decrease in the willingness of market participants to settle foreign exchange [16]. - The ratio of foreign exchange receipts to payments fell to 52.6%, the lowest in five months, while the payment-to-purchase ratio rose to 62.0%, the highest in seven months, suggesting a lack of accumulated expectations for yuan appreciation [16][18]. Group 4: Trade and Investment Trends - The surplus in goods trade payments decreased by $16.5 billion to $72.9 billion, reflecting a slowdown in export revenue collection [15]. - Direct investment payments recorded a deficit of $7.5 billion, with foreign income dropping to $50.2 billion, the lowest in five years, indicating a slowdown in capital inflows [12].

Group 1 - The potential interest rate cut by the Federal Reserve in September 2025 is a key external factor influencing the Chinese economy, with a 92% probability of a rate cut reflected in the U.S. interest rate futures market [1] - The U.S. labor market shows signs of weakness, with a 0.8 percentage point decline in GDP growth from the first to the second quarter, and the core PCE price index year-on-year growth falling to 2.3%, creating room for the Fed to ease monetary policy [1] Group 2 - The narrowing of the China-U.S. 10-year government bond yield spread from 2.1 percentage points in 2023 to 0.3 percentage points is a significant positive development, potentially allowing for a 150 basis point reduction in China's reserve requirement ratio [3] - The aviation and real estate sectors are expected to benefit first, with the former holding $38.7 billion in dollar-denominated debt and the latter having approximately $52.6 billion in outstanding dollar debt, alleviating financial cost pressures from exchange rate fluctuations [3] Group 3 - Over the past 12 months, northbound capital has net flowed into the A-share market by 243 billion yuan, with the consumer electronics, new energy vehicles, and high-end equipment manufacturing sectors accounting for 62% of this inflow [3] - In the MSCI China index, stocks with foreign ownership exceeding 5% have an average valuation below the central value of the past five years by 23%, indicating potential for value reassessment during the Fed's rate cut cycle [3] Group 4 - The CFETS RMB exchange rate index, if it rises to the 101-103 range, could reduce the average procurement cost of basic imported goods by 6.3%, significantly impacting strategic materials like iron ore and crude oil [4] - The apparel and textile sectors may face pressure, with a 1% appreciation in the RMB potentially eroding profit margins by 4.7%, affecting over 120,000 export enterprises [4] Group 5 - The manufacturing PMI has remained above the threshold for four consecutive months, with the new export orders index rising to 51.6, indicating effective structural adjustments [4] - The recent 9.2% increase in the global commodity price index may offset some benefits from alleviating input deflationary pressures [4]

Core Viewpoint - The offshore RMB has strengthened against the USD, breaking the 7.1 mark for the first time since November 7, 2024, indicating a potential long-term appreciation trend for the RMB [1][3]. Exchange Rate Trends - On September 17, the offshore RMB reached a high of 7.0964 against the USD, while the onshore RMB closed at 7.1163, marking a 65 basis point increase from the previous trading day, the highest since November 6 of last year [1][2]. - The RMB has experienced two rounds of appreciation since the implementation of "reciprocal tariffs" by the US in April, with the first round starting on May 10 and the second round from late August to the present [1]. Factors Driving Appreciation - The recent rapid appreciation of the RMB is attributed to multiple factors, including expectations of interest rate cuts by the Federal Reserve and rising domestic asset values [3]. - The strengthening of the RMB is also influenced by a decline in the US dollar index due to signals from the Federal Reserve and improved domestic stock market performance, leading to increased foreign capital inflow [3]. - A growing global preference for Chinese equity assets has catalyzed the RMB's appreciation, with foreign capital net buying A-shares for the first time in months, enhancing the attractiveness of Chinese assets [3]. Long-term Outlook - Analysts predict that the RMB is entering a long-term appreciation cycle, with Deutsche Bank forecasting the exchange rate to reach 7.0 by the end of 2025 [4]. - The overall trend for the RMB exchange rate is expected to be characterized by "steady appreciation" and "two-way fluctuations" [3].

Core Viewpoint - The offshore RMB has appreciated against the USD, breaking the 7.1 mark for the first time since November 7, 2024, driven by multiple internal and external factors, indicating a potential return to a long-term appreciation trend for the RMB [1][5][7]. Group 1: Recent Exchange Rate Movements - On September 16, the onshore RMB closed at 7.1163 against the USD, marking a 65 basis point increase, the highest since November 6 of the previous year [2]. - The onshore RMB opened at 7.1100 on September 17, reflecting a 63-point increase from the previous day's close [2]. - Over the past 20 days, the onshore RMB has appreciated by 0.97%, while the offshore RMB has risen by 1.15% [3]. Group 2: Factors Driving Appreciation - The recent rapid appreciation of the RMB is attributed to a weaker USD index, strong domestic equity market performance, and favorable RMB middle rate expectations [1][5]. - The Federal Reserve's signals of potential interest rate cuts and the influx of foreign capital into China's stock market have contributed to the RMB's strength [5][6]. - The preference for Chinese equity assets among global investors has catalyzed the RMB's appreciation, with foreign capital re-entering the A-share market [5][6]. Group 3: Long-term Outlook - Analysts predict that the RMB is entering a long-term appreciation cycle, supported by improved capital flow dynamics and easing trade tensions [7][8]. - Deutsche Bank forecasts the RMB/USD exchange rate could reach 7.0 by the end of 2025, driven by favorable economic conditions and inflation expectations [7]. - The overall market sentiment has improved due to coordinated policy efforts, which are expected to bolster the RMB's stability and attractiveness [8].

Core Viewpoint - The recent appreciation of the Renminbi (RMB) against the US dollar, surpassing the 7.10 mark, reflects the market's response to diverging monetary policies between China and the US, showcasing the resilience of the Chinese economy and the effectiveness of policy adjustments [3][9]. Group 1: Factors Driving RMB Appreciation - The expectation of interest rate cuts by the Federal Reserve is a primary driver of short-term RMB appreciation, with a 93.4% probability of a 25 basis point cut in September [4]. - China's economic fundamentals show resilience, with a 34.52% year-on-year increase in trade surplus in August and a 165% year-on-year surge in new energy vehicle exports, enhancing the attractiveness of RMB assets [4][5]. - The People's Bank of China (PBOC) has signaled a "stronger" direction in its daily midpoint rate adjustments, which has positively influenced market sentiment and increased demand for currency conversion [5]. Group 2: Impact on Financial Markets - The RMB appreciation has led to a surge in foreign capital inflows, with over $2.2 billion net purchases of A-shares in August and a total of $10.1 billion in domestic stocks and funds held by foreign investors [6]. - The stock market has responded positively, with the Shanghai Composite Index rising by 7.97% in August, further attracting foreign investment and supporting the RMB's strength [6]. Group 3: Challenges for Export Enterprises - Export-oriented industries face structural adjustment pressures due to RMB appreciation, which may lead to exchange rate losses and decreased price competitiveness [7]. - Experts recommend that companies shift from price competition to technological barriers, enhancing product value to mitigate risks associated with exchange rate fluctuations [7]. Group 4: Future Outlook and Policy Recommendations - The current RMB strength is a result of multiple factors, but caution is advised regarding potential market overheating and the historical lack of a fixed pattern in RMB movements following Fed rate cuts [8]. - Strengthening policy coordination is essential for maintaining exchange rate stability, including measures to guide industrial upgrades and expand domestic demand [8]. - The ongoing international monetary system transformation presents opportunities for the RMB, with a notable decline in dollar dominance and an increase in RMB internationalization [8].

Group 1 - Deutsche Bank's Chief Economist for China predicts a strengthening of the RMB against the USD, forecasting an exchange rate of 7.0 by the end of 2025 and 6.7 by the end of 2026 [3][6] - The improvement in the RMB exchange rate is attributed to better-than-expected export performance and a decrease in the market's expectation of RMB depreciation, leading to increased foreign exchange inflows [5][6] - The People's Bank of China has renewed bilateral currency swap agreements with the European Central Bank, Swiss National Bank, and Hungarian National Bank, which will enhance bilateral trade and investment facilitation [7][8] Group 2 - The bilateral currency swap agreements include a scale of 350 billion RMB/45 billion Euros with the EU, 150 billion RMB/17 billion Swiss Francs with Switzerland, and 40 billion RMB/190 billion Hungarian Forints with Hungary, with varying effective periods [7] - The seasonal characteristics of exports and the strong demand for profit recovery at year-end are expected to drive a concentrated foreign exchange settlement by exporters in the fourth quarter [6] - The current low level of short positions against the offshore RMB provides room for further strengthening of the RMB exchange rate [6]

Core Viewpoint - The People's Bank of China announced an increase in the central parity rate of the RMB against the USD, indicating a potential trend towards RMB appreciation supported by various economic factors [1] Exchange Rate Summary - The central parity rate for the RMB against the USD was set at 7.1034, an increase of 28 basis points from the previous day's rate of 7.1062 [1] - As of 9:40 AM on the same day, the onshore RMB was trading at 7.1185, reflecting a daily appreciation of 0.03%, while the offshore RMB was at 7.1161, with a daily appreciation of 0.06% [1] Economic Factors Influencing RMB Appreciation - Key factors supporting RMB appreciation include the interest rate differential between China and the US, policy risk premium, and purchasing power parity, all moving in a favorable direction [1] - The central bank's middle rate and increased foreign investment in Chinese stocks are additional catalysts for RMB appreciation [1] Market Outlook - The weak USD environment is expected to continue supporting RMB appreciation; however, weak export expectations and the need for domestic demand recovery suggest that the pace of appreciation should remain steady [1]