Guan Tao, the global chief economist of BOCOM International Securities, said that factors that might push up the RMB exchange rate include the weakness of the US economy, the Federal Reserve’s interest rate cuts and the general decline in market confidence in the US dollar.
Mr. Guan said in an interview last week that another potential driver is the possibility of a second trade deal between China and the United States, similar to the one reached during President Donald Trump’s first term, which could boost confidence in Chinese assets.
Despite the fact that the US dollar has dropped by about 8% this year due to global investors pulling out of US assets, the onshore yuan has appreciated by only 1.6%, making it one of the weakest currencies in Asia. The yuan has fallen by 5.2% against a basket of trade-weighted currencies, lagging behind most major currencies.
Despite Beijing officials’ insistence that they are not seeking a competitive edge through the depreciation of the RMB, the currency’s poor performance has raised speculation about whether it signals a policy intention. The depreciation of the RMB has also sparked calls for China to appreciate the currency. Some economists and former officials from the United States and Europe have warned that a prolonged weakness of the RMB could harm consumption and intensify trade tensions.
Several institutions, including Deutsche Bank, UBS Group and Toronto-Dominion Bank, have raised their forecasts for the RMB/USD exchange rate to around 7, citing optimism in the market over the eventual conclusion of a trade deal between China and the United States. The last time the offshore RMB broke through the 7 mark was in September 2024. This week, the RMB/USD exchange rate has remained around 7.18.
Guan Zhixiong, the former director of the Balance of Payments Department of the State Administration of Foreign Exchange, said that if conditions are ripe, the RMB exchange rate may rise above that level, but he denied the claim that Beijing is deliberately depressing the exchange rate to support exports. He said that the depreciation of the RMB “is a result, not a policy goal.”
“The Chinese government’s aim is not to boost export competitiveness by devaluing the RMB, but to prevent excessive short-term fluctuations in the bilateral exchange rate, which could affect the financial stability of enterprises,” Mr. Guan added.
He said that China has the tools to deal with greater exchange rate fluctuations and that the renminbi should be made more flexible and market-oriented, which will provide policymakers with more room to adjust monetary policy.
“Our policies should serve domestic goals more directly – growth, employment and price stability,” he said. “The most important thing is what can support these goals.”
The People’s Bank of China said on Friday that despite China’s economy having just experienced its worst month of the year, it will not significantly loosen monetary policy through measures such as cutting interest rates. The central bank promised to fully implement a moderately loose monetary policy while maintaining the RMB exchange rate at a reasonable and balanced level.
Technical analysis:
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Gold: There are still many uncertainties in the near term, and they are dominating the market direction. The price may have a small rebound intraday, but it may encounter resistance again when it enters the 3325/35 area. We may try 1-2 short signals intraday, but this is just an intraday swing attempt, not a trend change attempt. For detailed positions, please consult the plugin.
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The Nasdaq index: The overnight price dropped significantly to the 23,200 level, and the Nasdaq led the decline in the US stock market. Currently, the market’s most concern is whether Powell will give a hint of interest rate cuts on Friday. The proportion of those betting on a 50 basis point cut may be slightly higher at present. If Powell’s speech remains neutral, the current price of the Nasdaq may face more downward fluctuations. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: Further entry should be considered only after a momentum breakthrough signal. It is recommended to closely monitor the price’s performance when it breaks through around 63.50 within the day, and then look for opportunities to retrace to the blue zone. For detailed positions, please consult the plugin.
(Crude oil 15-minute chart)
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Key economic data and events to focus on today:
14:00 UK July Consumer Price Index
15:00 German Producer Price Index for July
17:00 Eurozone July consumer price index final reading
At 23:00, Federal Reserve Governor Waller will deliver a speech at the Wyoming Blockchain Conference.
