The RMB rises above the 6.80 mark—will it continue to appreciate?

Morning FX

Driven by robust export data and positive sentiment from US-China talks, the onshore RMB surged strongly past the 6.80 mark on Monday.

I. Reasons for the Current Round of RMB Appreciation

1. Strong exports, robust demand for FX settlement by enterprises

In April, exports grew by a better-than-expected 18.7% year-on-year, with a single-month trade surplus reaching $84.8 billion. Both imports and exports maintained a high level of prosperity. The strong export performance is mainly due to robust demand stemming from global investment in data centers and power equipment,the proportion of high value-added product exports continues to rise, providing a solid foundation for RMB appreciation.

2. US-China Leaders' Meeting This Week, Positive Sentiment for RMB Appreciation

3. The midpoint continues to rise, policy guidance strengthens the appreciation trend

On Monday, the RMB midpoint was raisedby 35 points to 6.8467 in the direction of appreciation, the highest level since March 24, 2023.Since April, the RMB midpoint has increased cumulatively by 727 pips from 6.9194.The continued upward adjustment of the RMB midpoint further reinforces the market’s appreciation expectations.

II. Will It Continue to Appreciate?

1. Seasonal FX Purchase Pressure

From a seasonal perspective, May is traditionally not a RMB appreciation month. According to preliminary statistics, the scale of June-August FX purchases for Chinese dividends is about $5.9 billion, with some enterprises possibly executing purchases ahead of time, leading to increased FX demand in the market.

2. The Resilience of US Economic Data Supports the US Dollar Index

At present, both US economic data and US stocks do not support a sharp decline in the US Dollar. Last Friday’s nonfarm payrolls data exceeded expectations, and the market remains with a 10% probability that the Fed will hike rates within the year.

On the euro side, the Citi Economic Surprise Index for Europe and the US diverges significantly,high energy costs are dragging down the eurozone economy,making it difficult for EURUSD to break above the 1.18 resistance level.

In terms of the yen,the impact from last week’s intervention by Japan in the FX market is diminishing at the margin, while rising oil prices and strong US economic data provide solid support for USDJPY at 155.00.

III. Summary

1. In the short term, after the RMB broke above the 6.80 level, its downside has opened up. Driven by sentiment, it is expected to further appreciate to the 6.75 area. However, affected by both seasonal FX purchase pressure and the resilience of the US Dollar Index, the room for sharp RMB appreciation is limited in the short term, and the exchange rate is expected to consolidate within the 6.75–6.85 range.

2. In the mid-to-long term, the trend of RMB appreciation still looks promising. China’s export structure continues to optimize, and the trade surplus provides solid support for the exchange rate; the domestic economy is steadily recovering, pro-growth policies continue to be implemented, and the attractiveness of RMB assets will keep rising. By year-end, the RMB is expected to revisit the 6.7 level.