On January 5, the China Foreign Exchange Trading Center announced that the central parity of the RMB against the US dollar was 6.4760, a two-and-a-half-year high with a sharp increase of 648 basis points from the previous trading day. Driven by this, the RMB exchange rate rose by more than 300 points in early trading that day, and then corrected. Onshore RMB closed at 6.4640 against the US dollar at 16:30, basically the same as the previous trading day. The offshore RMB against the US dollar rose to around 6.44, continuing to break the record since June 2018.
According to Reuters in Shanghai on January 5, this official median price hit a new high in more than 30 months, which was also higher than the Reuters estimate of 6.4978.
The British “Financial Times” website reported on January 4 that the RMB exchange rate had risen to its highest level in more than two years, thus erasing most of the losses suffered since the Sino-US trade war.
It was believed that China’s economic recovery after the pandemic was brought under control has provided support for RMB. In addition, the incoming Biden administration in the US may help ease tensions between Beijing and Washington. This expectation also supports the appreciation of RMB. Now, the RMB exchange rate has roughly returned to the level it was before President Trump provoked the Sino-US trade war in mid-2018.
Last year, with the huge interest rate differential between China and the US and Europe, investors have turned to RMB assets. At that time, the US and European Central Banks sharply lowered their benchmark lending rates to record lows.
Julia Hu, head of Asian macroeconomics at Schroder, said that other factors supporting the renminbi include “improvements in China’s current account conditions and the potential demand from global investors who want to diversify their assets beyond the US dollar.”