On February 24, the RMB exchange rate suddenly ushered in a wave of strong rise!
 

The USD/RMB exchange rate rose by more than 250 points in the afternoon, reaching a maximum of 7.2281, directly hitting a new high since November 29, 2024!
 

Meanwhile, the dollar index hit a near two-month low of 106.22.
 

As of February 25, the RMB exchange rate fell slightly to 7.2579.

 

 

Source: Sina Finance

 

 

So why did the renminbi suddenly strengthen? How long can this rally last?

 

 

Reasons for the appreciation of the renminbi

 

 

1. The U.S. dollar index is weak

 

 

Recently, the U.S. dollar index has fallen significantly, and the U.S. tariff policy has been within the range of market expectations, which has failed to form additional support for the dollar.
 

At the same time, the narrowing of the spread between US and European government bonds has directly weakened the attractiveness of US dollar assets, causing some funds to shift from US dollar assets to other currency assets such as the euro.
 

The weakening of the US dollar, as well as the fall of the dollar index, means that the US dollar has weakened against a basket of major currencies, and the renminbi, as one of the non-US currencies, will naturally appreciate due to this trend.
 

2. China's economy is gaining momentum
 

China's economy has shown strong resilience in recent years, with the manufacturing PMI continuing to expand, the consumer market gradually recovering, investment and export data performing well, and the trade surplus continuing to expand.

The rapid development of emerging industries and emerging technologies represented by robots and new energy vehicles has been widely used in upstream and downstream industrial chains and consumption scenarios, which has effectively promoted the formation and development of new quality productivity and further promoted the high-quality development of China's economy.

These improvements in economic fundamentals have provided solid support for the RMB exchange rate, and market expectations for China's economic growth have strengthened, attracting more foreign capital inflows.

 

3. Foreign capital flows into the Chinese market

 

The increasing openness of China's capital market has attracted a large inflow of foreign capital.
 

After the Spring Festival, the demand for foreign exchange settlement of enterprises rebounded seasonally, and the safe-haven attribute of RMB assets gradually became prominent, which has become an important choice for global capital allocation.
 

After foreign capital enters the Chinese market, it needs to exchange RMB for investment, which directly increases the demand for RMB and pushes up the exchange rate.

 

4. The trade surplus has widened
 

 

China's foreign trade performance is strong, and exports occupy an important position in the global supply chain, especially in the fields of electronics, machinery and equipment, and export orders continue to grow.
 

The trade surplus hit a record high and foreign exchange earnings increased sharply, further strengthening the appreciation momentum of the renminbi.
 

The increase in demand for Chinese goods driven by the global economic recovery also provided additional support to the RMB exchange rate.
 

5. Government policy support

 

The Chinese government's policy support is also an important reason for the strengthening of the yuan.
 

The People's Bank of China (PBOC) has maintained a relatively neutral monetary policy and avoided the pressure of currency depreciation caused by excessive easing.
 

The steady growth policy has strengthened the market's confidence in China's economic prospects, while the accelerated internationalization of the renminbi has further enhanced its attractiveness as an international currency.

 

 

Can the renminbi continue to appreciate?

 

Analysis of the foreign exchange market shows that if China's internal risk premium falls or the US monetary policy turns accommodative, the RMB may continue to appreciate slightly!
 

Wang Qing, chief macro analyst of Oriental Jincheng, pointed out that the trend of the US dollar is still the core variable affecting the RMB exchange rate.
 

The trade policy moves of the new U.S. administration and the path of the Fed's interest rate will dominate exchange rate volatility.
 

Taking into account the difference in the monetary policy cycle between China and the United States, it is expected that the RMB will show the characteristics of "increased flexibility and two-way fluctuation" during the year.
 

At the same time, the breakthrough of the 7.23 mark will attract more capital into the Chinese market, and if the RMB exchange rate can stabilize between 7.20-7.23, then the RMB exchange rate will usher in a medium-term appreciation opportunity.
 

In general, under the influence of multiple factors, the RMB exchange rate may maintain a strong trend of volatility in the short term, but the medium and long-term trend still needs to observe the domestic and foreign economic situation and policy changes.

 

 

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