RMB exchange rate: US CPI inflation rises more than expected

[Market Review] In the previous trading session, the USD/CNY pair showed overall volatile movements. The onshore RMB closed at 6.7946 against the dollar at 16:30, up 8 basis points from the previous trading day, while the night session closed at 6.7955. The central parity rate of the RMB against the US dollar was set at 6.8426, an increase of 41 basis points, continuing to reach a new high since March 2023. At the New York close, the US Dollar Index rose by 0.35% to 98.28.

[Core Logic] The movement of the US Dollar Index will still be marginally affected by geopolitical risk aversion sentiment. Market concerns about prolonged conflicts continue to rise, driving the strength of the US Dollar Index. During trading hours, the Japanese yen suddenly strengthened, which might signal Japan's intervention, causing the US Dollar Index to slightly drop before recovering. In the overnight session, the release of US CPI data exceeded market expectations and hit a new high since May 2023. Structurally, oil prices remain the primary force pushing inflation higher, while price increases outside energy and commodities indicate that tariff-driven inflation is gradually fading. Overall, this inflation data gives the Federal Reserve more reason to tilt its monetary policy towards managing inflation. Following the CPI release, the US Dollar Index extended its gains. On the RMB side, benefiting from better-than-expected export data and growing optimism over Trump’s potential visit to China, the USD/CNY exchange rate continued to decline. It is crucial to monitor signals from the central bank aimed at stabilizing the exchange rate. If the RMB continues to appreciate rapidly, the central bank may activate its policy toolkit again to break consistent market expectations and guide the exchange rate toward stable operations.

[Strategy Recommendations] In the short term, export companies are advised to lock in forward exchange sales in batches at opportune high points near 6.85 to avoid the risk of profit shrinkage due to potential currency depreciation. Import companies, on the other hand, can adopt a rolling foreign exchange purchase strategy near the 6.78 level.

[Key Information]

1) Under the impact of the Iran conflict, US inflation unexpectedly surged, with April CPI rising 3.8% year-on-year, hitting a nearly three-year high, and core CPI expanding to 2.8%. The “new Fedwire” commented on April CPI: Rate cuts are no longer part of the 2026 narrative; Kevin Warsh has trouble ahead.

2) The US Court of Appeals suspended the ruling against Trump's 10% global tariff, allowing the tariffs to remain in effect.

3) The US Senate confirmed Kevin Warsh as a Federal Reserve governor, with confirmation voting for the Fed Chair expected to conclude as early as Wednesday.

4) Iran stated that the precondition for negotiations with the US is ending hostilities and lifting blockades. Trump said he is not in a rush to resolve the conflict with Iran and will consider red lines for halting war while on Air Force One. He added that preventing Iran from acquiring nuclear weapons is 'only a matter of time.'

Author: Pan Xiang, NanHua Research Institute, Z0021448

Important Disclaimer: The content and opinions in this article are for learning and reference purposes only and do not constitute any investment advice. The market carries risks, and investments should be made with caution.

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