FOREX REVIEW: little change

The renminbi has ended the week little changed against the US dollar, suggesting Beijing remains comfortable with a relatively strong but tightly controlled currency even as China leans heavily on exports to support growth. USD/CNY closed at 6.7096 on September 11, compared with 6.7108 a week earlier, a marginal RMB gain of around 0.02%. The stability has come despite strong US inflation data that has increased expectations of another Federal Reserve rate rise, normally a source of upward pressure on USD/CNY.

The PBOC has continued to guide the currency gradually stronger rather than allowing a rapid appreciation. Its USD/CNY fixing strengthened from 6.7787 on September 4 to 6.7743 on September 11, the strongest fixing since February 2023. That pattern is consistent with Beijing seeking exchange-rate stability while avoiding a sharp rise that could damage exporters. The balancing act has become more important after August exports jumped 25% year on year and the monthly trade surplus reached $119.09 billion, highlighting the extent to which external demand continues to support an economy still struggling with weak domestic consumption and investment.

The RMB has moved more noticeably against the yen. Based on ECB reference rates, 100 Japanese yen rose to around RMB4.355 on September 11 from RMB4.295 a week earlier, meaning the RMB weakened about 1.4% against the Japanese currency. The move largely reflected a strengthening yen as investors increased expectations that the Bank of Japan will raise interest rates. Against the euro, by contrast, the RMB strengthened about 0.3%, with EUR/CNY falling to 7.7762 from 7.7994 despite the European Central Bank raising rates during the week.

The near absence of a gap between the RMB’s onshore and offshore rates over the past week indicates little sign of offshore investors challenging Beijing’s preferred range. Attention now turns to this week’s Federal Reserve and Bank of Japan meetings. With markets pricing a high probability of rate increases by both central banks, the next test will be whether rising global yields finally push USD/CNY higher or whether the PBOC continues to hold the RMB near its strongest levels in more than three years.