As non-US currencies begin to recover, the renminbi has once again returned to an appreciation channel. Just yesterday, the central parity rate of the US dollar against the renminbi hit a new low since May 2023, reported at 6.9523, approaching the key level of 6.95.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/18d2b921-9fe5-4657-ad24-2f228eeb026b.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/18d2b921-9fe5-4657-ad24-2f228eeb026b.png"/> Figure: The pace of central parity adjustment has accelerated
Since the peak of the trade war in April last year, the central parity rate of the US dollar against the renminbi has been on a downward trend for eight consecutive months. After experiencing a low volatility consolidation from September to November, it ultimately returned to a trajectory close to the market appreciation rate. With the Spring Festival approaching, should we hold foreign exchange for the holiday?
<h2>What is the rhythm of the renminbi's appreciation?</h2>
In December last year, the renminbi's appreciation began to accelerate. Following a monthly appreciation of about 900 pips, January continued with an appreciation of 500 pips. In February, ahead of the Spring Festival, enterprises concentrated on foreign exchange settlement, leading to a sharp increase in trading volume during intraday appreciation, especially with an increase in forward settlement volume.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/d2f017b3-008f-44b6-b8b5-6e53d1fb9f48.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/d2f017b3-008f-44b6-b8b5-6e53d1fb9f48.png"/> Figure: Increased settlement volume during intraday appreciation
If one word summarizes the characteristics of the renminbi's appreciation, it should be &#34;self-centered.&#34; During this round of de-dollarization, the US dollar index has fluctuated between 96-99. When the dollar index falls, the renminbi releases appreciation momentum accordingly, with a steady downward slope of USDCNY; when the dollar index rises, the renminbi adjusts slightly, limiting the rebound space of USDCNY, mostly within 100 pips.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/64f04ee1-9663-4afe-8f0f-c893ec38067a.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/64f04ee1-9663-4afe-8f0f-c893ec38067a.png"/> The renminbi is less affected by the dollar index
It is evident that settling at high points has become a consensus, with enterprises abandoning fixed points in search of swords in the boat, choosing to flexibly adjust in line with trends.
<h2>What are the risk points before and after the holiday?</h2>
First, there is a supply-demand imbalance under the settlement pressure before the Spring Festival. Although it has appreciated by 300 pips in February, based on the appreciation speed of the past two months, USDCNY may still fall to the 6.9 level. This round of collective rebound in non-US currencies, especially the upward trend of the shadow currency Australian dollar, has become the strongest currency, increasing the pressure for the renminbi's appreciation.
Second, there are key data catalysts. This Wednesday, the previously absent January non-farm payrolls will be released, and CPI will be announced on Friday. Employment and inflation data are concentrated in the same week, especially since Friday coincides with the domestic market close. If the data falls short of expectations, the renminbi may face further appreciation risks under weak liquidity during the Spring Festival.
Additionally, this Spring Festival holiday is the longest ever at 9 days, containing a 50 pips Carry yield. Speculative trading around the Carry before and after Wednesday may also increase volatility, with short-term option volatility showing signs of rebound
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/b75a48f3-8e0b-41a7-ac6b-7e7fbf148d38.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/b75a48f3-8e0b-41a7-ac6b-7e7fbf148d38.png"/> Volatility begins to rebound
<h2>Summary</h2>
(1) The central parity rate of the US dollar against the Chinese yuan hits a new low, and the US dollar index resumes its downward trend, with the appreciation momentum of the yuan strengthening before the holiday.
(2) The appreciation before the Spring Festival may not be over; key data catalysts and Carry Trade amplify market volatility. It is reasonable to choose to settle at high points and adjust to acceptable levels.
Good morning, forex market
Risk warning and disclaimer
The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk

USDU

83192

03192

03420

03161

83161

03122

83122

The central parity rate of the RMB against the US dollar hit a new low since May 2023, reported at 6.9523, indicating a trend of RMB appreciation. Despite an increase in foreign exchange settlement demand before the Spring Festival, the RMB may still face appreciation risks, especially after the release of key economic data. The Spring Festival holiday lasts for 9 days, which may bring a 50 pips Carry return, and there are signs of a rebound in volatility in the short term

- The RMB has returned to a strengthening trend, with the USD/CNY midpoint rate hitting a new low of 6.9523, the lowest since May 2023.  
- Since the peak of the trade war in April 2022, the RMB has appreciated over eight months, with rapid gains beginning in December 2023.  
- The upcoming Lunar New Year is expected to influence trading volumes and volatility, particularly with key economic data releases that may affect the RMB's appreciation trajectory.

Wallstreetcn

Wtree Bbg Usd Bull

A BOS RMB MM-R

A BOS RMB MM

A VP RMB MM

Invesco DB US Dollar Index Bullish Fund

A CAM RMB MM

A CAM RMB MM-R

A CSOP RMB MM

A CSOP RMB MM-R

The midpoint rate hits a new low, should we hold foreign exchange for the holiday?