Multiple Factors Elevate Volatility in Recent Yuan Exchange Rate Movements

Deep News
Sep 22

On September 21, the People's Bank of China authorized the China Foreign Exchange Trade System to set the central parity rate of the yuan at 6.7487 per US dollar, marking an upward adjustment of 34 basis points. Looking back at the past week, the yuan's central parity rate has shown a fluctuating upward trend, with the offshore and onshore yuan briefly touching the 6.70 level against the dollar on September 18.

Industry experts attribute the recent strength of the yuan to a combination of factors, including a solid domestic economic foundation and robust export performance. They expect the currency to continue trading in a two-way fluctuation pattern, maintaining overall stability at a reasonable and balanced level. On a global scale, volatility in currency markets has intensified due to monetary policy adjustments by major overseas economies and geopolitical tensions in the Middle East, yet the yuan has remained moderately strong, reflecting the steady operation of China's foreign exchange market.

Addressing potential disruptions from divergent monetary policies across economies, Wang Qing, chief macro analyst at Golden Credit Rating, stated that the impact of US Federal Reserve rate hikes on the yuan exchange rate should not be overestimated. China has already established a dual regulatory framework combining macro-prudential and micro-supervisory measures for cross-border capital flows, which can effectively mitigate risks from large-scale capital movements and safeguard the stability of the foreign exchange market.

Wang noted that the recent sustained upward adjustment of the yuan's central parity rate primarily stems from strong internal support, including a stable external trade environment, continuously high export growth, and a steady domestic macroeconomic trajectory. According to the latest data from the General Administration of Customs, China's total goods trade imports and exports reached 34.78 trillion yuan in the first eight months of this year, up 17.6% year-on-year. In August alone, the total value reached 4.65 trillion yuan, a 19.8% increase compared to the same period last year.

"In August, China's goods trade maintained steady growth, with both exports and imports recording double-digit increases for four consecutive months in terms of scale. This fully demonstrates the resilient support of China's complete industrial system for foreign trade and the strong impetus of its innovation capabilities," said Lyu Daliang, director of the Statistics and Analysis Department of the General Administration of Customs.

Looking ahead, Wang forecast that the yuan exchange rate is likely to sustain its moderately strong trend in the short term, while attention should be paid to changes in export growth and the impact of monetary policy adjustments by major overseas economies on the US dollar index. "Currently, factors influencing the yuan's rise and fall coexist. Short-term factors favoring the yuan are relatively dominant, but the macro tightening effect of appreciation may disrupt market sentiment. Over a longer horizon, uncertainties and instabilities affecting exchange rate movements remain numerous, and two-way fluctuations are the norm," said Guan Tao, chief economist at Huafu Securities.

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