On November 20th, both onshore and offshore RMB against the US dollar saw an expanded increase, both surpassing 7.17. Intraday, they rose by over 800 basis points and 500 basis points respectively, reaching new highs in the past three months.

Since November, onshore RMB against the US dollar has rebounded by more than 1400 points, and offshore RMB against the US dollar has rebounded by over 1700 points.

The RMB is surging! Five reasons were revealed.

According to interviews by a reporter from 21st Century Business Herald, analysts in the industry believe that the recent strength of the RMB exchange rate is mainly driven by several factors.

Pang Ming, Chief Economist of JLL China, stated that the recent strength of the RMB exchange rate is mainly driven by three factors: the alleviation of geopolitical pressure, the convergence of monetary policies between China and the United States, and positive trends in China's macroeconomic data.

Geopolitical pressure eases:

The meeting between the leaders of China and the United States released positive signals, significantly reducing geopolitical uncertainty.

Convergence of monetary policies between China and the United States:

The unexpected drop in US inflation in October weakened the necessity for further interest rate hikes by the Federal Reserve in December. Meanwhile, China's excess MLF (Medium-term Lending Facility) continues, and the November LPR (Loan Prime Rate) remains unchanged, keeping the interest rate differentials between the two countries from widening.

Positive macroeconomic data for October in China:

Major indicators of the national economy continue to improve, with overall stable economic performance providing a solid foundation and support for the RMB exchange rate.

As of November 15th, data released by the National Bureau of Statistics showed that in October, the added value of industrial enterprises above designated size increased by 4.6% year-on-year, an increase of 0.1 percentage points from the previous month. Retail sales of consumer goods increased by 7.6% year-on-year, an acceleration of 2.1 percentage points from the previous month. The national service industry production index increased by 7.7% year-on-year, an acceleration of 0.8 percentage points from the previous month. The national urban surveyed unemployment rate was 5.0%, unchanged from the previous month.

Passive appreciation due to the decline of the US dollar:

Wang Qing, Chief Macro Analyst of Orient Securities, added in an analysis to a reporter from 21st Century Business Herald that the recent high in the RMB exchange rate is mainly due to the passive appreciation caused by the decline of the US dollar. Since November, the offshore RMB against the US dollar has appreciated by 2.25%, onshore RMB against the US dollar has appreciated by 1.98%, while the US dollar index has fallen by 2.95% during the same period, covering more than the appreciation of the RMB.

However, Wang Qing also pointed out that besides the change in the trend of the US dollar, the key determinant of the strength or weakness of the RMB exchange rate is still the domestic macroeconomic and real estate industry trends.

Overseas capital quietly increasing positions in RMB bonds:

According to observations by 21st Century Business Herald reporters, the continuous breakthroughs of the RMB exchange rate beyond key levels such as 7.2, 7.19, 7.18, and 7.17 can be attributed not only to the end of the Federal Reserve's interest rate hike cycle, which led to the continuous decline of the US dollar index to 103.57 but also to the quiet increase in positions by overseas capital in RMB bonds.

Data shows that over the past two months, overseas capital has consistently increased its positions in RMB bonds, with an increase of about RMB 20 billion in September and an increase of over RMB 40 billion in October, marking the largest monthly increase in the past four months.

"Given that the yield on 10-year US Treasury bonds surged during the September-October period, causing the spread between China and the United States to widen to -216 basis points, the unusual increase in positions in RMB bonds by overseas capital is noteworthy," pointed out a forex trader from a Hong Kong bank.