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In the recent period, domestically, economic data has continued to improve, and policies to stabilize the economy and exchange rate have continued to be implemented; internationally, for the first time this year, the Federal Reserve suspended interest rate increases twice in a row, U.S. bond yields fell after rising, and the U.S. dollar index fluctuated. Against this background, the RMB exchange rate fluctuated within a narrow range, with exchange rate volatility declining significantly.
Data from the China Foreign Exchange Trading Center (hereinafter referred to as the "Trading Center") show that in October, the annualized volatility of the closing price of the RMB exchange rate was only 1.11%, the lowest in a single month since the "8·11" exchange reform in 2015; at the same time , affected by the rise in U.S. bond yields, the interest rate gap between China and the United States once widened to -220 basis points, a record low, and the RMB-USD swap points remained fluctuating near historical lows.
Since November, the RMB exchange rate has risen both in volume and price. On the one hand, the exchange rate has stabilized and appreciated, once breaking through the 7.15 mark; on the other hand, as of the end of October, the average daily trading volume in the spot market has dropped by more than 30% month-on-month for two consecutive months, while the spot inquiry trading volume has rebounded significantly in November.
According to Zhou Ji, a macro foreign exchange analyst at the Nanhua Research Institute, the recent strong trend of the RMB exchange rate is due to the improvement of domestic market expectations to a certain extent; on the other hand, the external pressure from the US dollar has weakened, which has also caused The strength of the renminbi is gaining momentum.
RMB exchange rate fluctuates within a narrow range
In October, domestic economic data was stable and improving, domestic demand gradually recovered, and policies to stabilize the economy and exchange rate continued to be implemented. Against the background of the deepening inversion of Sino-US interest rate differentials and the strengthening of the US dollar, the RMB exchange rate fluctuated within a narrow range.
Statistics show that in September, inflation, import and export, social financing and other data were better than market expectations. In the third quarter, gross domestic product (GDP) increased by 4.9% year-on-year beyond expectations, and the economic fundamentals are stable and improving. In addition, monetary policy continues to be prudent, fiscal policy has been stepped up, and trillions of yuan in additional issuance of government bonds is expected to grow steadily.
At the end of October, the Central Financial Work Conference was held, emphasizing comprehensively strengthening financial supervision and maintaining the stable operation of the financial market. Under the favorable influence of fundamentals and policies, despite the strong performance of the U.S. economy and the deepening inversion of interest rates between China and the U.S., the RMB exchange rate only fell slightly and maintained a narrow range during the month. As of the end of October, the RMB exchange rate closed at 7.3176, down 0.24% month-on-month.
At the same time, the volatility of the RMB exchange rate has dropped significantly, the deviation of the closing price from the central parity rate has continued to be high and continues to expand, and the correlation with the US dollar has weakened. In October, the volatility of the RMB exchange rate dropped significantly. The annualized volatility of the closing price was 1.11%, a decrease of 2.82 percentage points from September, the lowest in a single month since the "8·11" exchange reform in 2015; the average daily amplitude was 140 basis points, a decrease of 102.63 basis points from September. The deviation of the closing price of the RMB exchange rate for the whole month from the central parity rate at 16:30 further widened, with the daily average deviation being 1299.57 basis points, a month-on-month expansion of 177 basis points, which is at a historically high level. The correlation between the RMB exchange rate against the U.S. dollar and the U.S. dollar index for the whole month was 29.80%, a month-on-month decrease of 7.03 percentage points, reflecting that the RMB exchange rate trend during the month was further weakened by the U.S. dollar index.
Data from the Trading Center showed that in October, the RMB exchange rate index fell after a sharp rise, declining from the previous month. The CFETS exchange rate index once rose to a recent high of 99.69 in the middle of the month, but fell back to 99.31 at the end of the month, a month-on-month decrease of 0.24%.
"Since the beginning of this year, U.S. dollar interest rates have been high and global risk aversion has increased, pushing the U.S. dollar index to its highest level since 2003, driving the collective depreciation of non-U.S. The currency is basically stable and has appreciated against non-US dollar currencies." Pan Gongsheng, Governor of the People's Bank of China, said at the 2023 Financial Street Forum Annual Meeting that since the second half of the year, the CFETS exchange rate index has increased by 2%, and the RMB has depreciated slightly against the US dollar by 0.3%, and against the euro, The pound and the yen appreciated by 1.5%, 2.1% and 3.7% respectively.
