Core Viewpoint - The report emphasizes the synchronized movement of the RMB exchange rate and domestic asset trends, attributing the RMB appreciation since mid-April primarily to changes in risk premiums, and proposes a methodology to monitor exchange rate expectations in real-time [1][11]. Exchange Rate Expectations and Asset Class Uniqueness - The reflexivity of exchange rate expectations can lead to self-fulfilling prophecies and potential overshooting risks, necessitating policy attention [2][15]. - The heterogeneity of expectations arises from different interpretations of domestic fundamentals by various market participants, influenced by information transmission delays [2][17]. Indicator Summaries Indicator 1: NDF and CIP Swap Differential - The NDF market reflects high-risk expectations from foreign institutions, with implied appreciation expectations decreasing from 2.13% to 1.50% between June and mid-August [3][19]. - The predictive power of the NDF-CIP differential shows a probability of actual appreciation at 71.2%, 71.0%, and 69.2% after one week, two weeks, and one month, respectively [3][22]. Indicator 2: Offshore and Onshore Price Differential - A positive offshore-onshore price differential typically indicates a depreciation trend for the RMB, with a 75.6% probability of actual depreciation following a positive signal [4][24]. - The CNH-CNY differential reached -432 pips in mid-April, signaling short-term appreciation expectations, while the current average is 57.9 pips, indicating a neutral signal [4][27]. Indicator 3: Settlement and Foreign Exchange Indicators - The settlement surplus in July 2025 exceeded seasonal highs, indicating increased willingness among enterprises to settle in RMB, with a net settlement rate turning positive for the first time in 26 months [5][30]. - The effectiveness of the combined signals for appreciation expectations is higher than for depreciation, with probabilities of actual appreciation at 64.4%, 63.6%, and 61.8% over one, two, and three months, respectively [5][32]. Indicator 4: Shanghai Gold Premium - The Shanghai gold premium reflects domestic expectations, with a historical average of 1.67 CNY per gram, indicating continued appreciation expectations for the RMB [6][34]. - The demand for gold as a hedge against RMB depreciation has decreased from May to August, with net outflows from domestic gold ETFs [6][34]. Indicator 5: USDCNY Risk Reversal Options - The risk reversal options indicate a market expectation of depreciation for the RMB in the short term, with a 71.6% probability of actual depreciation following a signal [7][19]. - The implied volatility curve has shifted, suggesting a bearish outlook for the RMB in the longer term [7][19]. Indicator 6: Risk-Neutral Probability Density Function (RND) - The RND analysis shows a fluctuating expectation for the USDCNH, with a tendency for appreciation expectations to rise and fall in phases [8][19]. - The effectiveness of the RND in predicting actual depreciation is lower compared to other indicators, with probabilities of 55.4%, 59.3%, and 51.6% for actual depreciation following appreciation signals [8][19]. Indicator 7: Bloomberg Consensus Forecasts - The Bloomberg survey indicates a shift in market expectations for the USDCNH, with a notable increase in the forecast from April to August [9][19]. - The predictive accuracy of the Bloomberg survey has been relatively low, with success rates around 43.5% to 51.6% for various time horizons [9][19]. Conclusion - The long-term trend of the exchange rate is influenced by purchasing power parity and general interest rate differentials, while short-term fluctuations are significantly affected by risk premiums [10].