The USD/CNY exchange rate hit a new low of 6.75 today. Actually, this round isn’t entirely about the dollar; the renminbi (RMB) itself is getting stronger. 1. China’s exports and current account surplus remain at high levels, and companies have accumulated a large amount of USD. When there’s an expectation of RMB appreciation, exporters who were waiting for better rates start converting their dollars into RMB, selling USD and buying RMB, which further accelerates the drop in the USD/CNY exchange rate. 2. The RMB isn’t just appreciating against the USD. The CFETS, BIS, and SDR RMB exchange rate indices have all risen recently, with the SDR index even hitting its highest level since February 2023. This shows that the RMB isn’t simply following the dollar but is strengthening against a basket of currencies. 3. The market’s previous biggest concern—China-U.S. interest rate differentials—is no longer the sole pricing factor. Strong exports, conversion demand, a recovery in Chinese assets, and a weaker dollar are temporarily outweighing the depreciation pressure from interest rate differentials. What’s next? In the short term, the RMB still has room to appreciate. As long as exports remain resilient and companies continue converting their dollars, the USD/CNY rate could keep testing the 6.7 level. But I don’t think it’ll drop all the way to 6.5 without resistance. If the RMB appreciates too quickly, it’ll squeeze exporters’ profits. The central bank would prefer to see a managed, moderate appreciation rather than a one-sided speculative trend. Factors like Fed policy, a dollar rebound, international oil prices, and corporate demand for foreign exchange could all cause fluctuations at any time. So, the more likely scenario is for the USD/CNY rate to fluctuate between 6.7 and 6.9, with a gradual downward shift in the midpoint, rather than a rapid one-sided trend like in the past. The traditional logic of ‘widening China-U.S. interest rate differentials = RMB depreciation’ is losing its grip. #Forex #USD #CNY #RMB #Markets