China: Understanding RMB Exchange Rate Cycle

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Jinyue Dong (BBVA Research) | This report is trying to answer the three questions: What is the underlying logic of the ongoing RMB appreciation trend? Is the trend sustainable as the global economy normalizes? And where will the RMB exchange rate go at end-2021?


From May 2020 to now, RMB to USD exchange rate seems to have been entering into a one-way appreciation trend with its accumulative appreciation for around 9.6%.

Growth divergence in pandemic time, weak DXY index, interest rate divergence, the surprisingly resilient China’s exports and current account all seem to explain the ongoing appreciation.

Will RMB to USD break the psychological level of 6 at end-2021? Cautiousness and conservativeness are needed.

Except for the historical high interest rate differentials which might last for a longer period of time, other factors will be normalized as the global economy recovers with the vaccine roll-out, thus will not become a reason to support the RMB exchange rate any longer.

The PBoC’s intension in maintaining a stable RMB exchange rate in order to maintain exports momentum and curb hot money inflows is important for the future RMB exchange rate prediction.


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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.