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$USD/CNH (USDCNH.FX)$ The RMB has been booming recently. There are three main reasons: the reversal of economic and policy expectations between China and the US, the slowdown in capital outflows, and the acceleration of appreciation catalyzed by the “settlement wave” before the Spring Festival.
First, it is a rapid reversal of economic and policy expectations between China and the USEconomic expectations changed from “moderately weak, US strong” to “moderately strong, American weak.”
Under the “Three Arrows” of real estate and the adjustment of the epidemic policy, expectations for the Chinese economy have reversed, while expectations for the US recession continue to increase due to repeated inflation in the service sector.
In terms of policy, the slowdown in the Federal Reserve's interest rate hike confirms that the US dollar index is declining and the RMB exchange rate is passively appreciating.
Second, the inversion gap between China and the US has narrowed, and capital outflows have slowed
Previously, the yield on US Treasury bonds was higher than the yield on Chinese treasury bonds due to the effects of the Fed's interest rate hike and the blockage of domestic economic recovery. This is not normal. Generally, interest rates on treasury bonds in developed countries will be lower than in developing countries. This situation is also known as interest rate inversion.
Today, interest rates on Chinese treasury bonds are rising in anticipation of recovery, while US treasury bonds are weakening in anticipation of a recession, and the gap between China and the US is narrowing inversely. The northbound capital is no longer flowing out, and the rhythm of buying and buying has resumed.
The third is the arrival of the “settlement wave” before the Spring Festival, further increasing the pressure on the RMB to appreciate in the short term。
Generally, there is a seasonal phenomenon of “convergence waves” a month or two before the Spring Festival.
Looking ahead to the whole year, the RMB is still a major trend of appreciation, but at the pace, it may depreciate and then rise on the current basis.
Short term...
First, it is a rapid reversal of economic and policy expectations between China and the USEconomic expectations changed from “moderately weak, US strong” to “moderately strong, American weak.”
Under the “Three Arrows” of real estate and the adjustment of the epidemic policy, expectations for the Chinese economy have reversed, while expectations for the US recession continue to increase due to repeated inflation in the service sector.
In terms of policy, the slowdown in the Federal Reserve's interest rate hike confirms that the US dollar index is declining and the RMB exchange rate is passively appreciating.
Second, the inversion gap between China and the US has narrowed, and capital outflows have slowed
Previously, the yield on US Treasury bonds was higher than the yield on Chinese treasury bonds due to the effects of the Fed's interest rate hike and the blockage of domestic economic recovery. This is not normal. Generally, interest rates on treasury bonds in developed countries will be lower than in developing countries. This situation is also known as interest rate inversion.
Today, interest rates on Chinese treasury bonds are rising in anticipation of recovery, while US treasury bonds are weakening in anticipation of a recession, and the gap between China and the US is narrowing inversely. The northbound capital is no longer flowing out, and the rhythm of buying and buying has resumed.
The third is the arrival of the “settlement wave” before the Spring Festival, further increasing the pressure on the RMB to appreciate in the short term。
Generally, there is a seasonal phenomenon of “convergence waves” a month or two before the Spring Festival.
Looking ahead to the whole year, the RMB is still a major trend of appreciation, but at the pace, it may depreciate and then rise on the current basis.
Short term...
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