Since November this year, the onshore and offshore RMB exchange rates against the U.S. dollar have shown a continuous upward trend, breaking through multiple important thresholds in succession. Analysts said that seasonal factors at the end of the year and the recent rebound trend of the renminbi will encourage exporters to increase exchange efforts, which will further boost the renminbi, and the exchange rate against the US dollar is expected to return to the 7 yuan mark.

RMB appears to be supported by seasonal factors at the end of the year

Data show that over the past six years, the yuan has strengthened in November and December every year, with the largest increase in 2022.

The CICC report also shows that the yuan tends to appreciate in the closing months of each year because exporters need more yuan to meet cash needs at the end of the year and before the Lunar New Year.


The RMB’s gains against the U.S. dollar in November and December in the past six years (Source: Bloomberg)

The yuan has generally been underperforming this year, meaning many companies have been waiting for more favorable conditions to exchange their dollar deposits.

Recently, against the backdrop of weakening expectations for interest rate hikes by the Federal Reserve and the recent weakness of the U.S. dollar, the RMB is expected to record its best performance this year this month. Against this backdrop, exporters may start to reverse course and increase their efforts to convert dollars into yuan. At the same time, this will also boost optimism about continued economic improvement.

"Dollar-related indicators are key to sustaining the yuan's rise," said Neo Wang, managing director of China research at Evercore ISI in New York."In terms of foreign exchange settlements, we believe we will see a peak in December, and seasonal factors may support the yuan's gains against the dollar before the end of the year."

Has the RMB broken its downward trend?

As domestic regulatory authorities have recently increased their support for the financing of real estate companies and geopolitical risks have weakened, optimism about Chinese assets is also increasing.

Liu Jie, head of macro strategy at Standard Chartered China, said that as China's economy bottoms out and rebounds, positive seasonal factors will become more significant. As capital outflows slow down, the monetary policies of the Federal Reserve and the Central Bank of China will gradually converge, and Sino-US relations show signs of stabilization, the period of greatest depreciation pressure faced by the RMB may be over.

At the same time, from a technical perspective, with the recent strengthening of the renminbi, speculation that the renminbi has broken its long-term downward trend is heating up.Some analysts predict the yuan will continue to rise against the dollar, approaching the level of 7 yuan to the dollar - a level last approached in May.

Last Friday (November 24), the central parity rate of the RMB against the US dollar was reported at 7.1151 yuan, an increase of 61 basis points from the previous trading day. It was the highest quotation of the central parity rate of the RMB since June 10. On Monday, it fell slightly by 8 basis points to 7.1159. On Friday, the onshore RMB closed at 7.1488 yuan per U.S. dollar, up 0.9% from the previous week.

Xiaojia Zhi, head of research at Credit Agricole CIB in Hong Kong, said: "Given that the macro outlook appears to be stabilizing and the seasonal factors in the yuan are also favorable for the remainder of the year and the beginning of the year, we remain relatively optimistic about the yuan exchange rate at the end of the year and in 2024."