Current Exchange Rate Surge
On August 29, 2024, the RMB surged as both offshore and onshore RMB/USD rates broke 7.09, reaching a new high since August 5. The offshore RMB/USD rate rose by over 400 points, currently at 7.0935.
Reasons Behind the Dollar’s Decline
This surge is mainly due to a rapid decline in the USD index, driven by the strengthening of the yen. The forex market is experiencing a cycle of yen carry trade unwinding, yen appreciation, USD decline, and rising non-USD currencies. With the Fed's rate at 5.33% and Japan's short-term rate at 0.25%, the USD/JPY spread is at 5.08%. The decline in USD/JPY since July reflects expectations of a narrowing spread.
Potential Future Impacts
Currently, the USD/JPY rate is around 145 and is unlikely to fall below 140 in the short term. If the Fed signals a rate cut, it could support further RMB appreciation. The drop in the USD index boosts RMB valuation, while lower USD asset yields may exacerbate the USD index decline and extend RMB gains.
Impact on Foreign Trade Businesses
The sudden RMB appreciation has hit foreign trade companies hard. For example, a $300,000 order has resulted in over 40,000 RMB losses compared to last week, affecting profits. Despite this, businesses must quickly settle payments to suppliers. The RMB’s significant appreciation in August has created volatility, a major risk for foreign trade. This period is crucial for settlement due to shipping and customs times.
Post time: Sep-02-2024