FOREX REVIEW: RMB up on the dollar

The renminbi (RMB) has strengthened against the US dollar over the past week, making imports cheaper at a time when higher energy prices are adding pressure to China’s slowing economy. The RMB ended the week at 6.75 against the US dollar, compared with 6.77 a week earlier, a gain of about 0.3%. The main reason was a weaker US dollar after the US Federal Reserve kept interest rates unchanged. A stronger RMB helps reduce the cost of imported goods, but it can also make Chinese exports slightly more expensive overseas.

The stronger currency has offered some relief as China’s economy continues to slow. China’s official manufacturing survey slipped further into contraction in July, while tensions in the Middle East pushed up global oil prices. Because oil and many other commodities are priced in US dollars, a stronger RMB helps limit the impact of rising import costs on Chinese businesses and consumers.

The People’s Bank of China (PBOC) has continued to guide the exchange rate steadily rather than allowing sharp swings. Its daily reference rates, known as fixings, have gradually pointed to a slightly stronger RMB, suggesting policymakers are comfortable with modest gains but do not want the currency to rise so quickly that it hurts exporters. The pattern indicates that Beijing has remained focused on keeping the currency stable while supporting broader economic growth.

But the RMB has not strengthened against every major currency. It weakened against the euro, with the exchange rate moving from 7.72 to 7.79 yuan per euro. It also lost ground against the Japanese yen, British pound and Australian dollar as those currencies strengthened for their own reasons, including changing expectations for interest rates and economic growth outside China. These moves reflected global market trends more than developments in China itself.

There has been no clear sign that financial markets have pushed back against Beijing’s preferred exchange-rate path, and there have been no credible reports of significant intervention in the currency market. Looking ahead, investors will be watching whether weak economic data prompt further policy support from the PBOC. Global oil prices and expectations for US interest rates are also likely to remain the biggest influences on the RMB in the coming week.