Core Viewpoint - The article discusses the 20th anniversary of the RMB exchange rate reform, highlighting the shift from a fixed exchange rate to a managed floating exchange rate system based on market supply and demand, referencing a basket of currencies [1][3]. Exchange Rate Reform - The RMB exchange rate reform, known as "7·21," was implemented on July 21, 2005, transitioning from a single peg to the US dollar to a more flexible system [1]. - Since the reform, the People's Bank of China has gradually increased the daily fluctuation range of foreign exchange trading prices and reduced intervention in the exchange rate, enhancing the market's role in the formation of the exchange rate [1]. RMB Exchange Rate Trends - A report by the China Financial Forty Forum (CF40) analyzes the RMB exchange rate's fundamentals, valuation, and potential in the context of current foreign exchange management policies and the internationalization strategy of the RMB [3]. - From 2005 to early 2022, the RMB's real effective exchange rate appreciated nearly 60%, aligning with the faster productivity growth of China's trading partners [3]. - However, since 2022, despite rapid industrial upgrades and increasing export competitiveness, the RMB's real effective exchange rate has depreciated by over 15% [3][6]. Determinants of RMB Exchange Rate - The determinants of the RMB exchange rate include external forces (global financial market risk appetite and the US dollar index), domestic market forces (improvements in economic expectations), and domestic policy influences [4][5]. - The correlation between the RMB exchange rate and the US dollar index is significant but lower than that of developed countries' currencies [4]. Domestic Policy Impact - Since 2017, China's foreign exchange reserves have stabilized, indicating a reduced intervention by monetary authorities in managing the RMB exchange rate [5]. - The alignment of the RMB's central parity and spot exchange rate from 2017 to 2022 suggests a move towards a more flexible floating exchange rate system [5]. Demand Insufficiency - Demand insufficiency is identified as the primary reason for the RMB's continued depreciation since 2022, leading to low price levels and asset valuation [6]. - The low inflation and weak asset price expectations resulting from demand insufficiency reflect a market failure, causing an undervaluation of the RMB's real exchange rate [6]. Recommendations for Exchange Rate Management - To address the current situation, it is suggested to establish a wide fluctuation range for the RMB against the US dollar to prevent excessive distortion of the exchange rate [7]. - The implementation of this intervention should be firm, with strict penalties for actions that breach set limits, ensuring that market participants do not easily challenge the established boundaries [7].

Report Summary 1. Report Industry Investment Rating No investment rating is provided in the report. 2. Core Views - **Financial Futures and Options**: - **Stock Index Futures**: Short - term, narrow - range fluctuations; medium - term, range - bound. Suggest holding short positions in MO2506 - P - 5800 out - of - the - money put options and IM2506 [1]. - **Treasury Bond Futures**: Short - term, short - term bonds fluctuate narrowly, long - term bonds remain strong; medium - term, bullish. Suggest holding long positions in T2509 or TL2509 [2]. - **Commodity Futures and Options**: - **Black and Building Materials Sector**: Steel prices are weak in the short - term and under pressure overall in the medium - term. Suggest continuing to sell call options on rebar RB2510 (exercise price 3300 - 3450) [5]. 3. Summary by Category Financial Futures and Options Stock Index Futures - **Varieties**: IF, IH, IC, IM [1] - **Short - term View**: Narrow - range fluctuations, with the CSI 300 Index operating in the range of [3840, 3900] [1] - **Medium - term View**: Range - bound, with the CSI 300 Index operating in the range of [3800, 3950] [1] - **Reference Strategy**: Hold short positions in MO2506 - P - 5800 out - of - the - money put options and IM2506 [1] - **Core Logic**: Overseas geopolitical risks reduce global risk appetite; domestic May fundamental data is weak, with consumption strong, production stable, and investment weak, and financial data is mixed. The market is in a pattern of frequent style switching [1]. Treasury Bond Futures - **Varieties**: TS, TF, T, TL [2] - **Short - term View**: Short - term bonds fluctuate narrowly, long - term bonds remain strong [2] - **Medium - term View**: Bullish [2] - **Reference Strategy**: Hold long positions in T2509 or TL2509 [2] - **Core Logic**: Inter - bank liquidity is stable and loose, overseas geopolitical risks boost global risk - aversion, and domestic May fundamental data is weak, strengthening easing expectations [3][4]. Commodity Futures and Options Black and Building Materials Sector - **Varieties**: Rebar, Hot - rolled coil [5] - **Short - term View**: Steel prices are weak [5] - **Medium - term View**: Steel prices are under overall pressure [5] - **Reference Strategy**: Continue to sell call options on rebar RB2510 (exercise price 3300 - 3450) [5] - **Core Logic**: - Raw material inventory pressure is large, and supply pressure of iron ore and coal - coke is expected to increase. High furnace profitability will increase finished steel supply [5]. - Downstream steel consumption is poor. Plate exports are not recovering, and building material demand is weak due to the off - season and lack of project funds [5][6].