As optimism about further appreciation of the renminbi has risen, Chinese banks helped their clients sell off foreign currencies at the fastest pace since 2020 last month.
According to official data released on Wednesday evening, in September, lending institutions net sold $51.8 billion of foreign exchange on behalf of their clients, marking the largest monthly net sell-off since December 2020. The clients include exporters, importers and some overseas financial asset investors.
Data shows that after the RMB exchange rate hit its highest point since November last month, market sentiment towards the RMB has become more bullish. Domestic exporters have increased foreign exchange conversion, which may support the RMB to strengthen amid the renewed escalation of trade tensions between China and the United States.
Khoon Goh, the head of Asian research at ANZ Bank Group, said: “The net surplus in foreign exchange settlement indicates that the inflow of funds into China is increasing, which helps to support the RMB, while the conversion by exporters is also accelerating.”
These figures highlight the surge in currency conversion in the context of strong export growth in September. This helps offset the outflow of funds from securities investment, as another report from the central bank shows that foreign institutions continued to reduce their holdings of domestic bonds last month.
Analysts interviewed by Bloomberg last month predicted that if the renminbi continued to appreciate to 7.00, Chinese exporters would convert hundreds of billions of dollars into renminbi. On Wednesday, the onshore renminbi traded at around 7.12 against the US dollar.
After US President Donald Trump stepped up his tariff threats against China in early October, the People’s Bank of China set the daily reference rate for the yuan at its highest level in about a year this month.
Khoon said that as the People’s Bank of China favours a stronger yuan and pushes the central parity rate higher, “we may see the export conversion rate rise further in the remainder of this year, which will lead to further appreciation of the yuan.”
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Gold: Yesterday, our plugin reminded us to place a buy limit order only after the price broke above the blue zone at 4116. The price movement yesterday was exactly as we expected, achieving a profit-to-loss ratio of more than 2 times. Currently, the price has not yet recovered to the key potential neckline level. A confirmed buy entry after a pullback is still needed for the momentum break. For detailed positions, please consult the plugin.
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Today’s key economic data and events to focus on:
20:30 Unadjusted U.S. Consumer Price Index for September
22:00 The final reading of the University of Michigan’s Consumer Sentiment Index for October in the United States
