RMB Breaks 6 Despite Dollar's Rate Hike

The Chinese yuan has once again broken through the 7.0 threshold.

Investors should have noticed that after the Chinese yuan surged significantly in early December, reclaiming the 7.0 threshold, it suddenly stopped in its tracks, with the previous sharp rise turning into minor fluctuations.

From December until now, the exchange rate has mainly fluctuated between 6.94 and 7.0. This has caused some concern, as the inability to rise further could well mean another drop, so when the yuan fell below 7.0 again, it once more put everyone's nerves on edge.

Friends who follow the A-share market may have also observed that as the yuan fell in recent days, the A-shares also experienced a significant decline.

The Shanghai Composite Index broke through the 3100 point mark on Monday, and continued to decline sporadically in the following days, starting another battle to defend the 3000 point level.

What caused the yuan to fall once more? Was it due to a strengthening US economy, or was it because various funds were massively selling off yuan?

01, US Economy

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The main data reason for believing that the US economy is strengthening might be the announcement of the final value of the US GDP for the third quarter, which rose by 3.2% quarter-on-quarter. This represents a significant reversal from the quarter-on-quarter decline in the first and second quarters of this year, leading many to believe that the US has emerged from a short-term recession.

Influenced by this news, the market has begun to predict that the next Federal Reserve rate hike will maintain at least 50 basis points, rather than the previously speculated 25 basis points.

Although several inflation-related data announced during this period have shown that inflation is falling from high levels, the Federal Reserve still believes that inflation will not quickly fall back to the 2% target range, and therefore restrictive interest rates need to be maintained for some time in the future.If the US dollar continues to raise interest rates and the terminal interest rate rises above 5.1%, then the US Dollar Index may, after a period of adjustment, resume its upward trend.

A few days ago, the US Dollar Index experienced a decline, breaking through 104 to reach a low of 103.4362, but it has rebounded back above 104 in the past two days. However, overall, there has not been a significant rebound in the US Dollar Index.

02, Foreign Capital Flows

In fact, although the exchange rate of the Chinese yuan against the US dollar has experienced a certain decline in the past two days, from 6.96 to 7.0, this should be considered a normal fluctuation.

Today, the yuan exchange rate has seen a slight increase, quickly recovering the 7.0 mark, with the highest point reaching 6.98.

After two days of decline, followed by an increase, this seems to be the normal performance of this period.

Previously, on December 13th, the yuan's intraday rate once broke through 7.0 but then recovered; there were also several trading days when it was very close to 7.0. This time, it just broke through 7.0 and quickly recovered, indicating that the yuan is still fluctuating within this range in a small amplitude.

The capital outflow by foreign investors that everyone is concerned about has not occurred.

Looking at the trend of northbound capital, we find that from December to now, more than half a month has passed, and northbound capital has been essentially in a state of net inflow, with only three trading days in a state of net selling.

In the most recent week, only on Monday was there a net selling of 1.491 billion, but starting from Tuesday, there have been three consecutive trading days of net buying, and the amount of net buying has been continuously increasing.03, The Final Battle

As China's economic strength continues to grow, more and more countries are willing to do business with China, and more and more funds are willing to invest in China. Some countries may even use RMB assets as their reserve assets and RMB bonds as a basis for increasing the credit of their national bonds. Therefore, there will be an increasing demand for the RMB, with more and more funds buying into it.

In the past, the reason why the US dollar was so strong was precisely because what has been mentioned above had already happened to the US dollar, and the same will happen to the RMB in the future.

Recently, data provided by the central bank showed that 18% of our country's total trade volume has already been paid in RMB, which is a very good signal.

In the future, more and more countries will be willing to settle with China in RMB. For example, we can now pay for iron ore from Australia in RMB.

Abroad, even in trades where China is not involved, the RMB is also used. For instance, this year India once paid in RMB when purchasing coal from Russia.

In the future, China's oil trade with Arab countries will also be settled in RMB.

All of these factors will lead to a higher demand for the RMB. When everyone is buying RMB in the currency market, the exchange rate of the RMB will naturally rise.

Therefore, there is no need to worry about the short-term fluctuations in the exchange rate of the RMB. In the coming period, although there will still be fluctuations, the low points of the RMB will continue to rise.

Perhaps this time is the last time in the near future that it will fall below 7.0. The final battle for the RMB is entirely possible to break through 6.0 in the continuing rise.