At the end of August, the offshore RMB exchange rate against the US dollar rose sharply, rising more than 340 points during the day, reaching a maximum of 7.1182 yuan, breaking through 7.12 yuan for the first time since November 6, 2024.

The market interprets that factors such as the relaxation of the exchange rate stabilization policy, the good performance of the domestic equity market driving foreign capital inflows, and the rise in expectations of the Federal Reserve's interest rate cut have supported the RMB exchange rate.

Why is the RMB quietly strengthening?

The strengthening of the RMB is not accidental, nor is it an "impulse" rebound, but three forces are exerting force at the same time: "policy stability + stock market bright spots + US dollar is ebbing".

The three major supports are clear at a glance, and the policy layer "does not toss and does not lie flat". The central bank's attitude towards the exchange rate is clear: it allows fluctuations, but does not allow it to get out of control. This "relaxed" style of regulation has reassured the market - it does not forcibly intervene to distort prices, but also releases signals at critical moments, enhancing the credibility of the RMB.

A-shares picked up, and foreign capital began to "scan the code to enter". Recently, the Science and Technology Innovation Board and the ChiNext have performed well, and high-dividend assets have also continued to attract gold. The net inflow of northbound funds for many consecutive days shows that foreign capital is not here to "pick up bargains", but has begun to reallocate RMB assets.

Is the Fed going to cut interest rates? Dollar pressure mountain. Big Powell has just "blown" in Jackson Hole, and the market has predicted a 25 basis point rate cut in September (with a probability of more than 85%). Once the Fed really starts the interest rate cut cycle, the US dollar index is likely to weaken, and the external pressure on the RMB will naturally fall into the water.

What do you think about the follow-up?

The "passive pressure period" of the RMB exchange rate is passing, and the active repair period may begin. If the Fed gradually cuts interest rates in September and November as scheduled, the weakening of the US dollar will reduce the pressure on the passive appreciation of the RMB; the narrowing of the interest rate differential between China and the United States will increase the attractiveness of holding RMB assets; The "cost performance" of foreign capital inflows into China's stock market and bond market has been further improved.

In a word: it is not that the RMB has become stronger, but that the US dollar has "reduced the fever".

The RMB did not "soar" and went very steadily

Since July, even though the dollar has not weakened significantly, the central parity of the RMB has appreciated step by step. Now, the market has begun to quietly discuss a topic that was once unthinkable: Can the RMB return to the "6" era? Understand the current pattern in three sentences:

1. The appreciation of the RMB is not "relying on luck", but "having confidence"

This wave of steady rise since July is not because the US dollar has collapsed (in fact, the US dollar is quite resistant to pressure), but because of the increase in signals of domestic economic stabilization, the recovery of A-shares has attracted foreign capital to return, and the willingness of enterprises and residents to settle foreign exchange has gradually rebounded. In other words, the market demand for RMB is shifting from "passive stability" to "active allocation".

2. September may usher in a wave of "foreign exchange settlement peak"

Why pay special attention to September? The Fed is likely to start cutting interest rates in September; the interest rate differential between China and the United States will narrow; the cost-effectiveness of foreign investment allocation of RMB assets has improved; The annual financial settlement cycle is approaching, and the demand for foreign exchange settlement of enterprises is rising seasonally. The superposition of these factors may trigger the centralized exchange of foreign exchange by institutions + enterprises, forming a "wave of foreign exchange settlement" and further pushing up the RMB.

3. The central bank's attitude is clear: delegate power to the market, but keep the bottom line

The People's Bank of China set the tone in the latest Monetary Policy Implementation Report: "Adhere to the decisive role of the market in the formation of the exchange rate, but also prevent overshoot and maintain basic stability." Translated: "You can trade, you can fluctuate, but I have tools in my hand (such as countercyclical factors, mid-price guidance), big ups and downs?" No way. This strategy of "letting go but not letting go" has actually enhanced market confidence.

Entering a new stage of strong shock

The market generally believes that the RMB will most likely not fluctuate in the future, but will enter a new stage of strong shock. But if you want to go more steadily and further, you have to see whether several "key variables" can cooperate well.

The two main lines determine the next trend of the RMB:

Internal strength: domestic stable growth + exchange rate policy is the "basic plate"

The key to stabilizing growth policies lies in "landing". Bond issuance has been accelerated, real estate has been loosened, equipment has been updated, and consumption has been stimulated. The policy "toolbox" has been opened; But the market is more concerned: is the money really flowing to the enterprise? Has the economy really picked up?

The more practical the policy, the better corporate profits will be, the more foreign capital will be willing to come, and the stronger the RMB support. The central bank stabilizes the exchange rate: not "control", but "escort". The People's Bank of China's attitude is clear: "Let the market determine the direction of the exchange rate, but never allow sharp fluctuations." ”

Through tools such as mid-price guidance and countercyclical factors, the central bank is like an "invisible coach", not personally playing, but gently helping at critical moments. This "bottom-line marketization" has enhanced the confidence of international investors.

Foreign forces: The Fed + tariff game is an "amplifier"

When will the Fed cut interest rates? Rhythm is more important than direction. There is a high probability of a 25 basis point cut in September, but whether it will be a "gradual reduction" or a "strong drug reduction" will affect the strength of the US dollar; if the US economy suddenly weakens, the Fed accelerates interest rate cuts, the US dollar weakens, and the pressure on the passive appreciation of the RMB is reduced. The Sino-US tariff game may be the "biggest surprise". One of the "variables" that the market is most looking forward to: can a "win-win agreement" between China and the United States be reached in the fourth quarter?

For the RMB, it will be a double benefit of sentiment + capital flow. This may be the biggest "upside catalyst" for the exchange rate in the second half of the year.

Jingtai's observation: RMB "strong shocks" can be expected, but "internal and external cooperation is needed"

Short-term (next 1-3 months): Benefiting from the Fed's interest rate cut expectations + the central bank's stable exchange rate + foreign capital return, the RMB is expected to operate strongly in the range of 7.0-7.2, and a phased breakthrough of 7.0 is not ruled out.

Medium-term (from Q4): If there are signs of easing of tariffs between China and the United States + domestic economic data continues to improve, the RMB is expected to challenge 6.9 or even lower, truly starting a "repair market".

Keep an eye on the "three major signals" and lay out the "three types of assets":

The trend of the RMB has never been just an "exchange rate problem", but a thermometer of China's economic confidence.