RMB Exchange Rate: Concerns Over Escalating Iran Conflict Resurface

Market Review: In the previous trading session, the US dollar against the RMB showed volatile trading. The onshore RMB closed at 6.9105 against the US dollar at 16:30, and the overnight session closed at 6.9110. The central parity rate of the RMB against the US dollar was set at 6.9141, down by 85 basis points. At the New York close, the US Dollar Index rose 0.26% to 100.19.

Core Logic: The US-Iran conflict has escalated again, with the US and Israel launching airstrikes on multiple industrial and nuclear-related facilities in Iran. Iran retaliated with drones and missiles and warned of retaliation against US and Israeli related industrial enterprises, which may indicate that the current US-Iran conflict has expanded from previous military strikes to core industrial strikes. Additionally, Yemen's Houthi forces have officially joined the war, increasing the risk of conflict spillover. Affected by the war news, crude oil broke through $100 again, while inflation narratives once again drove the US Dollar Index higher. Going forward, it is essential to monitor further developments in the geopolitical situation as well as the performance of US employment data. If risk aversion sentiment fades and data comes weaker than expected, caution is warranted for the risk of a pullback from high levels in the US dollar. Influenced by the stronger US dollar, the RMB exchange rate depreciated slightly.

[Strategy Recommendations] In the short term, export-oriented companies can consider locking in forward exchange contracts in batches around the 6.93 level to mitigate potential earnings erosion caused by currency depreciation. Importing firms, on the other hand, can adopt a rolling foreign exchange purchase strategy near the 6.85 mark.

[Key Information]

1) China’s Ministry of Commerce: Initiated two trade barrier investigations against the US.

2) Iran claims steel plants and nuclear facilities were attacked; drone swarm hit the largest transport hub, warning of equivalent countermeasures against any US ground actions, considering withdrawal from the Nuclear Non-Proliferation Treaty; US Secretary of State: The conflict in Iran will continue for another 2 to 4 weeks, achieving goals in Iran without deploying ground troops.

3) The Pentagon is reportedly planning a 'ground operation lasting several weeks,' with the amphibious assault ship 'Tripoli' and 3,500 troops arriving in the Middle East theater.

4) Iran claims the Strait of Hormuz has been closed and has turned back three container ships.

5) Yemen's Houthi forces have 'joined the fight,' claiming to have struck 'key military targets' in Israel, sharply increasing the risk of attacks on the 'second-largest energy corridor,' the Bab el-Mandeb Strait.

Author: Pan Xiang, NanHua Research Institute, Z0021448

Important Disclaimer: The content and opinions in this article are for educational 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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