Core Viewpoint - The offshore RMB exchange rate experienced a significant increase during the "May Day" holiday, with the USD/CNH rate dropping from 7.27 to around 7.21, indicating a daily increase of over 600 basis points [1][2]. Group 1: Factors Influencing RMB Appreciation - Reports of major U.S. retailers like Walmart resuming shipments from Chinese suppliers have improved expectations for China's foreign trade environment, leading to increased confidence among overseas investment funds regarding the RMB's valuation [1][3]. - The "buying on expectations" behavior in the forex market is gaining traction, as Wall Street institutions anticipate multiple interest rate cuts by the Federal Reserve this year, prompting them to hedge against USD depreciation by buying RMB and other non-USD currencies [1][7]. - The lower trading activity in the offshore RMB market during the holiday period allowed for significant short-covering by overseas institutions, which amplified the RMB's appreciation [1][4]. Group 2: Changes in Market Sentiment - Overseas hedge funds have reduced their short positions in offshore RMB, reflecting a shift in sentiment towards a more optimistic outlook on China's foreign trade environment [3][4]. - The reduction in short positions is evident as many hedge funds no longer engage in borrowing RMB for short-selling, and the number of funds willing to buy RMB derivatives at higher execution prices has decreased significantly [4]. - The overall sentiment indicates that most overseas investment institutions do not foresee the RMB falling below the 7.4 level in the short term, with many funds having cut their short positions by at least half since mid-April [4][5]. Group 3: Anticipated Market Movements - The RMB exchange rate is expected to fluctuate between 7.2 and 7.3 in the near term, influenced by the correlation with the USD index, which has been hovering between 98 and 101 [2]. - As optimism grows regarding U.S.-China trade negotiations, the trend of short-covering in offshore RMB is likely to continue, potentially allowing the RMB to recover the 7.2 level [5]. - Market participants are preparing for potential Federal Reserve rate cuts, with expectations of 3 to 4 cuts this year, leading to increased buying of non-USD currencies as a risk management strategy [7][8].